Tax increases chastise commerce and the consumer
The goal of the budget framework session to reduce indebtedness is understandable, but the government’s decision to increase the general VAT rate by one and a half percentage points is a significant blow especially to the speciality and household goods trade operating in Finland. The necessary structural reforms also remained minor in the budget framework session.
According to the Finnish Commerce Federation, raising the general VAT rate by one and a half percentage points to 25.5 per cent is a significant blow especially to the domestic speciality and household goods trade that is in international competition. Firstly, it weakens purchasing power by increasing prices and it accelerates inflation, which has just recently started to slow down. Secondly, it directly taxes Finnish work, as most of the costs of domestic trade companies and thereby the price of products involve work that is done here.
“This way, large tax increases are broadly reflected in the operating conditions of the commerce sector. For example, a speciality goods shop may have to make cost cuts in order to cope with tough international competition,” says Kari Luoto, Managing Director of the Finnish Commerce Federation.
A sufficient transitional period must be set aside for the practical implementation of the VAT increase. Shops will have to update their different systems, test them and reprice their products. This also causes a backlog for commerce’s system suppliers, in which case it cannot be done, for example, in summer, which is in the middle of the holiday period.
The Finnish Commerce Federation considers it strange to increase the VAT rate on sweets by 11.5 percentage points to the general VAT rate. The breakdown of food products into different tax rates must be done on a product-by-product basis, and so it is clear that taxation will become more complex and cause demarcation problems. It is also likely that the breakdown will collide with EU regulations, as was the case with the sweets tax in the past.
The Finnish Commerce Federation considers it good that the income taxation of low- and middle-income earners is not tightened. In the budget framework session, however, there would have been a good opportunity to carry out structural reforms that would increase the long-term efficiency of the national economy, such as a thorough reform of the retail distribution system of pharmaceuticals.
“Structural reforms would enhance the functioning of the market and benefit central government finances. This would strengthen purchasing power and would also improve consumer confidence. The government should ambitiously promote structural measures,” emphasises Luoto.
In targeting future growth measures, the situation in the commerce sector must be taken into account. An example of the necessary measures is the targeting of RDI subsidies, for example, to projects that increase the productivity and digitalisation of commerce and services. Extending the tax credit for household expenses to housing companies would also be a welcome reform.
Further information: Kari Luoto, Managing Director, Finnish Commerce Federation, tel. +358 (0) 400 688 708, kari.luoto(at)kauppa.fi
