VAT increase heavily affected purchasing power – tax revenue EUR 700 million below expectations

The increase in the general VAT rate from 24 per cent to 25.5 per cent, which entered into force last autumn, increased the caution of consumers. It has particularly hit the specialty goods trade operating in Finland, which is already suffering from weak purchasing power development.

Because of this, the tax increases are not reflected in the tax revenue as the government had hoped. The government’s budget reports show that the VAT revenue forecast has had to be reduced twice during the current year, by a total of EUR 700 million.

“It is clear that consumption taxation is now at the highest level in Finland and so tight that it has reduced consumer purchases,” says Kari Luoto, Managing Director of the Finnish Commerce Federation.

The timing of the general VAT increase was also extremely poor, as there is a lot of uncertainty in both consumer confidence and the operating environment of companies due to the general economic cycle, the geopolitical situation and fluctuations in trade policy.

The decline in commerce sector sales has led to a decrease in jobs in the commerce sector, and a total of up to 8,000 jobs will be lost in 2024–2026. Commerce is the largest employer in the economy, and it employed nearly 280,000 people nationwide in 2024. Commerce is also the largest employer of people under the age of 25 in business life.

In addition to the VAT increase, another phenomenon affecting the decline in commerce sector sales is the explosive growth of e-commerce outside the EU. According to the calculations published by the Finnish Commerce Federation in September, the state will lose significant tax revenue as a result of this phenomenon. In addition, the wave of low-price goods and counterfeit products from outside the EU threatens employment, the circular economy, product safety and consumer protection.

“Solutions to the Chinese junk problem can be found, among other things, in improving consumer purchasing power, holding platforms responsible for the goods sold on them, more effective monitoring of distance selling and strengthening the competitiveness of domestic commerce,” says Luoto.

However, there are also many positive signs in the economic outlook that provide prerequisites for growth: slowing inflation, the decrease in mortgage interest rates, the pay agreements in the spring and the tax reduction for all income levels that will come into force at the beginning of next year will improve the purchasing power of citizens.

“The government’s decision to reduce income tax was very welcome to the service sectors. In the commerce sector, we naturally hope that consumers would dare to make the purchases they have postponed and see that purchases made from a shop operating in Finland support their own well-being and the national economy, and are a safe option,” says Luoto.

Further information:

Kari Luoto, Managing Director, Finnish Commerce Federation, tel. +358 (0) 400 688 708, kari.luoto(at)kauppa.fi