EK’s stand on taxes: Corporate tax rate should be reduced to 20 percent
Turning the economy around and creating sustainable growth will require bold and unbiased decisions.
The Confederation of Finnish Industries EK believes that the corporate tax rate should be reduced to 20 percent in order to achieve a competitive advantage for Finland that encourages growth and attracts investments. The world’s economies compete most intensely in the form of corporate taxation.
EK’s stand is part of Finnish industry’s joint tax goals that were published April 8.
The conditions for the national economy going into the new decade are deeply concerning in many ways. The growing debt in the public sector cannot be controlled by raising taxes.
The overall tax rate in Finland is already prohibitive. Increasing the tax burden even further would stymie economic growth and lead to a new vicious circle of tax increases.
Reduce marginal tax rates
The harsh taxation on personal income in Finland remains a problem at all salary levels. The high marginal tax rates are a particular burden.
It is reasonable that wage earners should end up with at least half of their additional income, for example in the form of a wage increase or overtime compensation. In the long term the upper limit for marginal taxes should be reduced to 50 percent. At present the upper limit is 55 percent, which is charged for annual income that exceeds 66,000 euros.
There will be a lot of pressure to increase municipal taxes in coming years due to the ageing population and the inefficiency of service production. The income tax reductions that have been targeted on the national level should not be wiped out by increases in municipal taxes and social insurance contributions.
Several Finnish and international studies have shown that taxing companies is the most detrimental form of taxation in terms of economic growth. The burden of excessively harsh corporate taxation is ultimately carried by workers and consumers; the profitability of companies suffers and prices are subjected to inflationary pressures.
Use corporate taxation to attract investments
Finland’s current 26% corporate tax rate has lost its competitive edge. Last year corporate taxation was reduced in OECD countries despite the recession. In 2009 the average corporate tax rate was 26.3% among OECD countries and 23.2% among EU countries. Finland is competing for investments with numerous countries whose corporate tax rate is considerably lower than in Finland.
The corporate tax rate should be reduced to such an extent that it sends the right signal about Finland’s willingness to grow its economy and its business friendly environment.
Corporate taxation has an impact not only on investments but also on the location of corporate headquarters and where profits are taken. For this reason, the Confederation of Finnish Industries EK proposes that the corporate tax rate be reduced to 20%.
In addition, new tax incentives should be introduced to attract more innovative and growth-oriented companies to Finland.
Tax dividends in a way that encourages entrepreneurship
Corporate and capital taxation form a fixed entity. For this reason the taxation on capital income should be kept internationally competitive. Taxation should encourage entrepreneurship, Finnish ownership and the investment of capital in Finland. The current tax rate of 28% should not be increased.
Economic growth requires new companies and a high level of entrepreneurial motivation. The tax on dividends for unlisted companies currently favours strong equity and the long-term development of business operations. The strong balance sheets of companies have also supported them amidst the recent economic difficulties. If the tax on dividends is changed, care must be taken not to endanger the incentives for entrepreneurship.
Energy taxation must not burden competitiveness
A competitive environment for Finnish companies must also be safeguarded in energy and environmental taxation. The Confederation of Finnish Industries EK is not opposed to protecting the environment, but the decisions that are taken must not put Finnish companies in a disadvantageous position in relation to foreign competitors. Energy taxes are considerably lower in many EU Member States than in Finland. This is especially true of electricity taxes.
The energy tax burden on Finnish industry should be lightened towards the minimum level of the EU Directive, while the electricity tax should be abolished altogether within the framework allowed by the EU. In Sweden, for example, a significant share of industrial companies do not have to pay electricity taxes at all.
The very first step is to cancel the increases that have been planned for energy taxes from the start of next year. Similarly, the “energy tax cutter” should be strengthened to lower the tax burden for companies that require a lot of energy.