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16 Apr 2024

Finland: Government will raise VAT to 25.5 percent aiming to collect one billion euros a year more

Finland: Government will raise VAT to 25.5 percent aiming to collect one billion euros a year more

The government is considering implementing the VAT rise before year end, with the Finance Minister reportedly looking for a quicker implementation

TAXSPOC News Desk

BUDGET FRAMEWORK AGREEMENT:

  • Prime Minister Petteri Orpo’s government has finalized a budget framework for 2025-2028.
  • The administration aims to achieve nine billion euros in spending cuts and tax increases during its term, with six billion euros already implemented.

VAT INCREASE:

  • Finland’s value-added tax (VAT) will rise to 25.5 percent, up from 24 percent.
  • Expected implementation before year-end, affecting fuel prices and certain food items like sugary products and soft drinks.
  • The government plans to maintain lower VAT rates for essential goods like food and medical items.

REVENUE BOOST AND TAXATION CHANGES:

  • The VAT hike is projected to generate over one billion euros annually for the state.
  • Moderate adjustments in income tax rates and larger pension taxation (for pensions between 23,000 and 57,000 euros per year) are also part of the plan.
  • Emphasis on minimizing impact on low and middle-income earners, with tax reductions for these groups.

OTHER FISCAL MEASURES:

  • Changes in the household tax credit system estimated to save around 100 million euros.
  • Finnish VAT rate of 25.5% will be the second-largest in the EU, with Hungary maintaining the highest VAT rate.
  • Finland’s Insurance Premium Tax rate will also align with the new VAT rate.

EU COMPLIANCE AND DEFICIT MANAGEMENT:

  • PM Orpo stated that these measures are necessary to avoid EU’s excessive deficit procedure (EDP), a consequence of not meeting the Stability and Growth Pact (SGP) regulations.
  • EDP can be initiated if an EU country fails to comply with fiscal policies outlined in the SGP.

SOURCE:

  • Finland plans “difficult but necessary” spending cuts and tax rises | Yle News | Yle

EMEA Finland Indirect Tax

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