Changes to Taxation for 2023

As the year changes, there are also changes in tax legislation and policies. Some of the changes were approved in the government’s budget negotiations, or the budget session, in the autumn of 2022, and some of the changes were confirmed earlier.

Changes to Personal Income Taxation

Income Tax Index Adjustment and the Impact of the Health and Social Services Reform

An index adjustment is proposed for income tax bases at all income levels, in accordance with what is agreed in the government program. The aim of the index adjustment is to ensure that taxation does not tighten due to the progressive nature of the tax system and the general rise in income levels.

At the beginning of 2023, the health and social services reform will come into effect. This reform involves transferring tax revenues collected by municipalities to state-established wellbeing areas to finance their operations. Changes in income taxation will be implemented within the current tax system, reducing the municipal tax rates of all municipalities by 12.64% and correspondingly tightening state taxation. Consequently, more income tax will be paid to the state and less to the municipality. The changes made to income taxation are designed to have as little impact as possible on the level of taxation for taxpayers. The reform is not intended to lighten or tighten anyone’s taxation.

Temporary Electricity Deduction and Electricity Support in Income Taxation – Measures Aimed at Alleviating the Impact of High Electricity Prices

The government’s budget negotiations outlined new tax measures intended to mitigate the impact of high electricity prices on citizens. The budget proposal includes a temporary electricity deduction in income tax and temporary electricity support, targeted at those who cannot fully benefit from the tax deduction.

The electricity deduction is available for electricity consumed in a permanent residence between January 1, 2023, and April 30, 2023, when the amount paid exceeds 2,000 euros and is no more than 6,000 euros. In this case, the taxpayer is entitled to deduct 60% of the eligible costs from the amount paid as a household deduction. The deduction can be made from the taxable amount of electricity energy and the basic fee but not from electricity transmission. The goal of the electricity deduction is to compensate for electricity prices exceeding a later-determined deductible for households whose electricity costs become unreasonable. The household deduction granted based on electricity energy bills is not considered when calculating the maximum amount of the household deduction; it is granted in addition to other eligible household expenses.

The electricity deduction is a direct deduction from tax, similar to the household deduction, reducing the amount of tax payable.

Temporary Increase in Travel Expense Deduction Continues

The temporary increase in the travel expense deduction is proposed to continue on current terms. This means that the maximum amount for the travel expense deduction between home and work is 8,400 euros, with a deductible of 750 euros. The deduction for using one’s car is 0.30 euros per kilometer. The deductible for travel expenses for those returning from family leave is eased when the person has been on family leave for part of the year.

Other Changes to Income and Capital Income Taxation

Changes to Value-Added Taxation

Reducing the Value-Added Tax on Electricity as Part of Mitigating High Electricity Prices

Tax proposals also target the current year, 2022. The value-added tax on electricity energy has been reduced from the general 24% VAT rate to 10% for the period December 1, 2022, to April 30, 2023. The change aims to lower electricity prices. The change specifically targets the price of electricity energy and thus does not affect electricity transmission or electricity tax.

Value-Added Tax on Passenger Transport Reduced

The value-added tax on passenger transport is temporarily reduced to 0% for the period 1-4/2023, down from the current reduced rate of 10%. The zero-rate will apply to all currently taxable passenger transport services, such as train, bus, taxi, airplane, and ship transport.

What Else Changes?

The tobacco tax is increased, and the increases will be implemented semi-annually in 2023. The waste tax is also increased in accordance with the government program, such that a level increase of 10 euros per waste ton is made. The tax base is expanded to include gypsum waste in the waste tax’s scope.

The temporary reduction in the lottery tax rate continues in 2023, as does the halving of the fairway fee.

Vehicle tax for fully electric vehicles is increased. The corresponding exemption from car tax for fully electric vehicles came into effect in 2022. The tax increase will take effect for tax days after October 1, 2023.

The tax subsidy for paraffinic diesel oil is completely removed.

The government proposes changes to the tax levels of the soft drink tax. The changes are based on guiding healthier consumption, with increases made to the tax levels based on the sugar content of soft drinks.