Taxation

Updated: 15 Mar 2019
Next update: 20 Sep 2019

Tax ratio describes the amount of compulsory taxes and other levies collected by general government during the year, expressed as a percentage of GDP for that year.

Total tax ratio is one of the commonest measures used in international comparisons of public sector sizes.

The development of general government finances and the balance between expenditure and revenue directly influence the level and need for taxation. A characteristic feature of the welfare state has been the wide range of public sector tasks and large public social expenditure, which has been reflected in Finland’s high taxation rate and taxation directed at many different sectors. A prerequisite for economic development and the balance of public finances, moreover, is to ensure sufficient employment to enable a sufficient level of tax revenue and thereby cover the funding of public income transfers.

The targeting of taxation also has significant spill-over effects on the operating conditions and competitiveness of the business sector and industry. The economic effects of the national tax system are particularly highlighted in today’s global market. In terms of the vitality of industry, the tax system must be sufficiently clear and predictable. The level of taxation should also be reasonable to ensure that practising business activity in Finland is profitable and competitive relative to international competitors.

Taxation is also reflected in the development of households’ purchasing power, and therefore in growth prospects for demand and trade. Tax policy can steer citizens’ consumption in a desired direction by taxing in a targeted way certain commodities with excise duties, for example. Moreover, the government can at the same time use tax solutions to encourage entrepreneurs to invest and to activate consumer demand when the economy is weak.

   

Tax revenue grew by 2.2 per cent in 2018

The accrual of taxes and compulsory social security contributions grew by 2.2 per cent in 2018. The total accrual amounted to EUR 99.1 billion. The tax ratio fell from the previous year by 0.9 percentage points to 42.4 per cent. The tax ratio describes the ratio of taxes and compulsory social security contributions to gross domestic product. These data are based on the preliminary data on national accounts for 2018.

The value added tax revenue grew by 4.6 per cent and was EUR 21.3 billion. The majority of other taxes on goods and services also increased in revenue compared to the previous year. The revenue from the tobacco tax, alcohol tax and central government's share of Oy Veikkaus Ab's profit, for example, increased significantly. The revenue from tobacco tax increased by 15.9 per cent and was EUR 1.1 billion. The revenue from alcohol tax increased by 10.1 per cent and was EUR 1.5 billion. The revenue from central government's share of Oy Veikkaus Ab's profit increased by 8.6 per cent and was EUR 1.1 billion. The revenue from energy taxes increased by 1.9 per cent and was EUR 4.4 billion.

The income tax paid by households rose by 1.1 per cent and totalled EUR 28.5 billion. The revenue from taxes on property decreased by 3.2 per cent compared with to previous year. The revenue from inheritance and gift tax was EUR 692 million which was 23.9 per cent less than the exceptionally high revenue in 2017. The revenue from transfer tax was EUR 844 million, an increase of 8.8 per cent from one year before.