Final Report of the Working Group for Developing the Finnish Tax System, 51/2010
The task of the working group was to evaluate changes required to the tax system arising from the present tax system and changes in the economic environment, also taking the fairness of taxation into consideration. In its work, the working group has particularly taken into account the effects of population ageing on public finances, the greater significance than before of knowledge and intangible capital as factors in economic growth, challenges relating to sustainable development, and the impact of globalisation on the tax system.
The working group examined the need to develop various elements of the tax structure and taxation. The working group proposes that the emphasis of taxation be transferred modestly from taxation on work to taxation on consumption. This would be implemented by reducing taxation on earned income at all income levels, by raising both reduced tax rates and the standard tax rate in value-added taxation, and by increasing excise taxation. The reductions in taxation on earned income will be directed at earned income so as to boost incentives to work.
The working group proposes, with respect to corporate and capital income taxation, a modest shift from corporate income taxation to personal-level capital income taxation. As part of this change, the tax exemptions of dividends received from an unlisted company should be removed and replaced with reduced taxation of the normal return of the dividend.
The working group considers that the revenue share of corporate income tax should be transferred from the municipalities to the central government and that significance of the real-estate tax in municipal finances should be increased. With respect to taxation on housing, the working group proposes that the proportion of deductible interest expenses be gradually reduced. The working group's proposals with respect to inheritance and gift taxation relate to adjusting the tax scale to correspond with current wealth conditions as well as to broadening the tax base.
Finally, the working group evaluates the effects on income distribution and tax revenue of the proposed changes. The working group has made its proposal fiscally neutral, i.e. the tax increases and reductions, assessed statically, are of equal magnitude.
