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Tougher tax competition may lead to lower corporate taxes in the future – Economy –

Tougher tax competition may lead to lower corporate taxes in the future – Economy –

Brexit and Donald Trump's policies may eventually increase pressure to cut corporate taxes in Finland. The United Kingdom in particular has threatened to increase tax competition. If corporations are taxed less, wage earners will likely have to pay more taxes.

It has only been three years since Finland last reduced its corporate income tax, from 24.5% to 20%. As it stands, it is a competitive tax rate. But if tax competition intensifies, Finland may have to cut corporate taxes again. The UK currently taxes companies as much as Finland. But after Brexit, the tax may decrease.

Pina Aurila is a leading economist at the Finnish Business Association EK.

Photo: YIL/Jani Lampinen

– If the UK really advocates strong tax competition and reduces corporate taxes from 20% today to perhaps 15% or even less, this will affect the whole of Europe and therefore Finland as well, says Pina Aurila, a leading economist in the sector. Business in Finland. EK Association.

Ralf Sund, chief economist at the central civil service organization STTK, follows suit

-The pressure is not great yet. At the moment, we are already below the Nordic tax level. We also don't know what will happen after Brexit or what Trump's tax policy will look like. But if you try to explain the trends that the world is witnessing, in the longer term we may face pressure to reduce corporate taxes.

Ralph Sund, an older man with short gray hair and a short gray beard.  He is wearing a striped shirt.  He stands in front of the window overlooking the city.
Ralph Sund is chief economist at STTK

Photo: YIL/Jani Lampinen

Intense tax competition is a situation that Ralph Sund does not like.

– This is a crazy situation if you are constantly reducing taxes through international competition. It's a very bleak vision of the future.

Tax evasion or tax reduction?

Earlier this week, the Central Chamber of Commerce said Finland should not fight so hard against tax evasion. According to the Central Chamber of Commerce, this leads to increased bureaucracy for companies that pay their taxes honestly, while companies that want to evade taxes do so anyway.

– We have to focus on companies that are willing to pay taxes and those that are not willing to pay them, but would pay them if taxes were at a low enough level, says Anne-Marie Kimmel, tax director at the Central Chamber of Commerce.

South Pier 10

Photo: YIL/Jani Lampinen

Peña Orilla would prefer to have clear tax rules that everyone can follow, rather than a gray area of ​​half-permissible tax evasion. But he agrees that the level of tax is important.

– In fact, as a small country, Finland probably should have a slightly lower tax rate than competitors in order to have at least a small advantage that attracts companies to Finland. We lack the advantages that other countries have. “We are far from growing markets so tax policy can be a factor that encourages business here in Finland,” says Pina Orila.

STTK logo

Photo: YIL/Jani Lampinen

Other taxes may rise if corporate tax falls

Ralph Sund is reluctant to see the corporate tax decrease, but he doesn't think a lower tax would be an insurmountable problem.

The community tax collects approximately five billion euros out of total tax revenues amounting to approximately 90 billion. Therefore, it would not be an immediate disaster for society if corporate tax were to fall. Then you still have to remember that you may have to file other taxes. This means that wage earners may have to pay more taxes through either an income tax increase or a sales tax increase. You have to get that money from somewhere, which is missing in this case, says Ralph Sund.

If you choose not to raise other taxes, the state is forced to either borrow more money and increase the debt burden or cut social services at the same rate it cuts the corporate tax.