Tax subsidies are exceptions made to the normal basic structure of taxation, the so-called standard tax system, by which a certain business or a group of taxpayers is subsidised. In practice, tax subsidies refer to tax exemptions, tax deductions, lower tax rates and other comparable means. Tax subsidies are defined in tax legislation.
Tax subsidies are not mainly visible in expenditure items in the budget, as are direct subsidies, but they are shown as tax revenue that have not been received. Subsidies distributed through the tax system have been regularly monitored and reported in the budget proposal and in the final central government accounts. The listing of tax subsidies is published yearly at the same time as the budget proposal is submitted to Parliament.
When examining tax subsidies, it should be taken into consideration that the removal of a tax subsidy does not necessarily increase tax revenue by an equivalent amount. Some of the subsidies overlap, so they have an effect on each other's size. The methods for calculating subsidies also vary. However, the effects of subsidies on prices and taxpayers’ behaviour have not been considered in the calculation, and therefore it is difficult to assess the final effects of the removal of an individual tax subsidy.
Nevertheless, it is important to monitor tax subsidies, because they are used to channel significant public support to different targets. Tax subsidies also narrow the tax base and often complicate the tax system.
Tax subsidy calculations are based on the standard tax system. The calculation methods are mainly described in the VATT Institute for Economic Research's preparatory report Tax subsidies in Finland in 2009. In addition, the annual reporting of tax subsidies is supported by a steering group appointed by the Ministry of Finance, which monitors, evaluates and develops tax subsidy reporting. The steering group takes a stand on how changes in the tax basis are taken into account in determining and calculating tax subsidies. When new tax subsidies arise, the steering group decides on their calculation principles and, where necessary, assesses and develops the calculation methods for the current tax subsidies.
The working group on tax subsidies decides on changes to the calculation of tax subsidies. Memoranda of the working group on tax subsidies are available below.
- Tax subsidies in 2018−2020 (in Finnish)
- Tax subsidies in Finland in 2009 (in Finnish)
- Decision on appointing a working group on tax subsidy reporting (in Finnish)
- Changes to tax subsidies for energy taxation (in Finnish)
- Tax subsidy for removal costs paid by the employer (in Finnish)
- Memorandum on change in the regulatory system of energy taxation in 2011 (in Finnish)