As a part of the Budget for 2015, the Finnish Government proposes several amendments to taxation. The proposals are mainly based on the decisions made in the General Government Fiscal Plan last spring and in the Government Program submitted in June.
The Finnish Parliament will debate the proposals and it is expected to ratify them by the end of this year.
The most significant changes relate to excise duties and other indirect taxes. Changes to corporate income taxation are very few. Several amendments to personal income taxes are however proposed. Below we summarize the most significant changes.
Corporate income taxation
The right to deduct 50% of the business entertainment expenses, which was abolished for the fiscal year 2014, would be restored.
The tax base would be expanded by removing the tax exemption earlier available to certain subsidies paid to Finnish movie producers.
Personal income taxation
The following changes are proposed to tighten personal income taxation:
- income threshold of the temporary highest marginal tax class of the tax scale will be lowered from 100,000 to 90,000 euros;
- right to deduct the interests expenses on residential loans to be further gradually restricted from 65% to 50% by the year 2018;
- right to deduct commuting costs to be further limited;
- capital income tax to be tightened by raising the higher tax rate from 32% to 33%, and by lowering the threshold for the higher tax rate from 40,000 to 30,000 euros;
- inheritance and gift tax rates to be raised in all the tax scales by one percentage point.Personal income taxation would be lowered on the low and medium income levels by the following changes:
- income threshold of the three lowest marginal tax class to be decreased by 1.5%;
- child deduction to be introduced for low-income families, graduated according to the number of children;
- pension income deduction made from pension income to be increased in local government taxation;
- so called basic income deduction in the local government taxation to be increased from 2,930 to 2,970 euros; and
- deduction of income from work to be increased by raising the maximum amount from 1,010 to 1,025 euros.
The partial exemption available for taxis would be removed from most vehicles, and the exemption on cars imported in connection with immigration would be gradually abolished. In addition, several technical changes are proposed.
Motor vehicle tax
Motor vehicle tax levied on the use of motor vehicles would be tightened by several changes in the tax rates.
Amendments to taxes on tobacco are proposed to increase the excise duties, in average by 9%, on cigarettes, cigars and cigarillos, and smoking tobacco including fine-cut tobacco for the rolling of cigarettes and other smoking tobacco. The changes are mainly proposed to the specific excise duty on tobacco, with only minor changes in the ad valorem excise duties on tobacco products.
Energy taxes would be increased by raising the excise duties on fuels used in traffic and heating. Excise duty on fuel peat would however be lowered.
Electricity taxes would be increased by raising the tax rate by 0.35 cents per kWh in the tax class I applied to the electricity used by households, the public sector and service industries.
Refund of electricity tax available to the agriculture would be increased to compensate the increase in the tax rate.
Electricity tax on most activities of the mining industry would be increased by applying the higher tax rate class to the industry and by removing the right to refund of electricity tax.
Waste tax on recyclable materials taken to landfill would be increased from 50 to 55 euros per 1,000 kilos of waste. In addition, some changes in the reporting obligations are proposed.
Power plant tax (windfall tax)
Power plant tax (so called windfall tax) on hydro, wind and nuclear power plants built prior to 2004 would be cancelled entirely. The act on levying the power plant tax was ratified at the end of 2013, but it had not come into force due to e.g. pending state aid procedure in the European Commission.