Taxation

Updated: 18 Sep 2020
Next update: 16 Mar 2021

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 2.5 per cent in 2019

The accrual of taxes and compulsory social security contributions grew by 2.5 per cent in 2019. The total accrual amounted to EUR 101.5 billion. The tax ratio fell from the previous year by 0.2 percentage points to 42.2 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 2019. The accrual of taxes and compulsory social security contributions was EUR 426 million greater than according to the information available in March, mainly due to more precise social security contribution and value added tax figures.

In addition to the tax rate, we can examine the net tax ratio, which is calculated by deducting income transfers paid by general government from taxes received by general government. In 2019, the net tax ratio was 18.0 per cent of gross domestic product, down by 0.1 percentage points from the previous year.

The value added tax revenue grew by 2.9 per cent from the previous year and was EUR 22.0 billion. The revenue from other taxes paid for goods and services mainly decreased somewhat. The revenue grew in pharmacy fee (by 4.4 per cent) and the tax on soft drinks (16.9 per cent). The revenue from tobacco tax and alcohol tax grew only slightly. The revenue from central government's share of Oy Veikkaus Ab's profit fell by 0.9 per cent and amounted to EUR 1.1 billion. The revenue from energy taxes decreased by 2.3 per cent and the revenue for the year was EUR 4.3 billion. The revenue from vehicle and motorcycle tax, EUR 886 million, was 11.0 per cent lower than in the previous year and that of user charge on passenger vehicles, EUR 1.2 billion, 3.7 per cent lower.

The income tax paid by households grew by 2.9 per cent and the revenue amounted to EUR 29.4 billion. The revenue from taxes on property rose by 3.8 per cent from the previous year. In 2019, the revenue from inheritance and gift tax was EUR 748 million or 8.1 per cent more than in 2018. The revenue from transfer tax was EUR 857 million, with an increase of 1.5 per cent from one year before.