The rise in the general value-added tax (or VAT) rate has not brought as much extra income to the state as expected.
The government of PM Petteri Orpo (NCP) raised the general VAT rate from 24 percent to 25.5 percent at the beginning of September. The change was part of its efforts to balance public finances and boost state revenues.
The Ministry of Finance now estimates that the VAT hike brought about 160 million euros in extra income to state coffers in September and October. That falls short of the original estimate of almost 200 million euros.
"We assume that consumers will reduce their consumption a little when prices rise. In addition, the state's own tax expenditures increase due to higher VAT," said Tony Valve, a financial expert at the Finance Ministry.
Due to accounting delays, the state will not receive November and December VAT revenues until the beginning of next year.
Last year, the state collected 21.4 billion euros in VAT revenue. This year, that figure is set to rise by 300 million euros to around 21.7 billion. However, according to Valve, this is less than what was initially estimated, due to general weakness in the economy and lower-than-expected VAT revenues.
Next year, the ministry predicts that higher VAT will generate just under a billion euros more for state coffers. Initially, the estimate was well over one billion euros.
New VAT rises in January
From the beginning of next year, the government plans to raise the VAT on an array of products and services from 10 percent to 14 percent, likely raising prices.
The tax increase will apply to public transport tickets, taxi journeys, sports services, hotel stays, cultural and entertainment events, books and medicines. The change will not apply to newspapers and magazines, whose VAT stays at 10 percent.
Nordea economist Juho Kostiainen told Yle that although these increases affect fewer products, in percentage terms they are clearly larger than the increase in general VAT.
"The effect on prices will also probably be greater. Many consumers will certainly anticipate the increase and for instance, buy an annual gym card in December, when normally they would have bought it in January," he said.
The OP Group's leading economist, Tomi Kortela, points out that the general VAT rate covers around 40–50 percent of consumption, while the new VAT increases coming at the turn of the year cover between 5-10 percent of consumption.
"Because of this, the impact on additional income for the state will clearly be smaller. We will however see price increases for individual commodities, such as medicines," said Kortela.
According to estimates, the increase in the VAT on these products and services will bring additional revenues of approximately 305 million euros.
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