The commerce sector’s greetings to the government budget session: Supporting the competitive strength and environmental work of the commerce sector through reduced electricity tax

Compared to industry, the service sector in Finland pays electricity tax that is three times higher.* The difference between the electricity tax paid by the service sector and industry is likely to increase again next year, as in the proposed 2021 budget prepared by Matti Vanhanen, Minister of Finance, the electricity tax rate for industry will be lowered to the minimum level allowed by the EU.

“Commerce is the largest sector in the economy whether measured in the number of employees or gross domestic product. It is important to society how the commerce sector fares, as the sector generates wealth, well-being and success in Finland,” says Mari Kiviniemi, Managing Director of the Finnish Commerce Federation.

International competition has been used as the typical justification for the lower electricity tax rate applied to industry. However, the global nature of e-commerce and distance selling has also significantly changed the operating environment in the commerce sector. Among other things, automated commercial logistics centres are energy-intensive, which is why gradually reducing the electricity tax rate for the domestic commerce sector to the same level applied to industry would significantly improve the international cost-competitiveness of the commerce sector, as the total cost of electricity is a major competitive factor for companies.

In international comparison, the unfair competitive position of the domestic commerce sector is further highlighted when the electricity tax is increased. As consumers and the commerce sector belong to the same tax class, any increase in the electricity tax rate applied to consumers will also increase the price that the commerce sector and the entire service sector pay for electricity.

“International e-commerce means increasing cross-border competition for the commerce sector in Finland. The electricity tax must be decreased in order to ensure the cost-competitiveness of the Finnish commerce sector,” Kiviniemi says.

The commerce sector’s investments in emission-free energy production can be supported by increasing the maximum level of micro-generation within the limits permitted by the EU

Finland’s carbon neutrality target will not be reached unless all cost-efficient production sites for renewable energy are taken into use. The commerce sector has a lot of unused roof surfaces and land areas that can be harnessed for the production of renewable energy, and these investments could be supported by extending the tax exemptions applied to the micro-generation of electricity. In practice, an exemption from electricity tax means that micro-generators can themselves use the electricity they produce or transfer it to another party for tax-exempt consumption.

The maximum limit for tax-exempt micro-generation of electricity does not currently motivate operators to invest, for example, in their own solar or wind power plants. At the moment, micro-generators of electricity are exempt from electricity tax in Finland when the annual production of the production plant does not exceed 800 MWh. However, the EU’s regulation would allow a significant increase in the maximum limit for micro-generation—even up to 2,900 MWh at the current electricity prices.**

“Finland should definitely increase the maximum limit for micro-generation to the level permitted by the EU and, through that, support the commerce sector’s investments in zero-emission energy. If the electricity tax for the commerce sector is gradually decreased to the level applied to industry, it would be possible to increase the limit for annual production even higher,” Kiviniemi says.

For further information, please contact: Mari Kiviniemi, Managing Director, Finnish Commerce Federation, tel. +358 (0)50 511 3189, mari.kiviniemi@kauppa.fi

*The electricity tax rate for industry and the service sector was the same until the 1997 energy tax renewal. With the energy tax renewal, two separate electricity tax rates were introduced so that the electricity tax paid by industry is lower than the electricity tax paid by the service sector. There are two electricity tax classes:
tax class I: price 2.79372 c/kWh (incl. VAT 24 %)
tax class II: price 0.87172 c/kWh (incl. VAT 24 %)

**The support granted to companies is limited by the Commission Regulation (1407/2013) on de minimis aid, according to which a company may be granted no more than EUR 200,000 of de minimis aid during the current and two previous fiscal years. Contrary to industry, the commerce sector and other service companies are in the electricity tax class I, where the electricity tax is 2.253 c/kWh. At this electricity price level, the current limit for annual production could be increased to 2,900 MWh within the limits allowed in the EU’s regulation concerning de minimis aid.