Background information

Russia's invasion of Ukraine has affected Europe's energy supply and energy prices. The government of Finland stated in the most recent negotiations for budget amendments that it is unlikely that prices will return to their pre-war levels in the near future. Thus, the government has agreed to reduce the value added tax on electricity to counter the social effects of rising energy prices. In addition, the government of Finland is making preparations for an EU-level exception to the Energy Tax Directive 2003/96/EC in order to lower the VAT rate on electricity to under 10%.

Content of measure

The government decided to reduce the VAT rate on electricity from 24% to 10% for a limited period from the beginning of December 2022 until the end of April 2023. The measure aims to lessen the impact of rising energy costs on citizens.

The measure is part of the Finnish government’s latest budget amendment. This amendment makes the totalling the budget for 2023 €80 billion, creating an additional €8 billion in new fiscal debt. The Ministry of Finance calculated that the reduction is expected to reduce government VAT revenue by an estimated €209 million.

The VAT rate reduction only applies to the sale of electricity, not for transmission of electricity.

Use of measure

The measure targets all citizens. The effects of the VAT reduction on the energy costs of households will vary depending on levels of consumption. Between December 2022 and April 2023 the household saving can vary from only a few euros to several hundred euros.

Target groups

Workers	Businesses	Citizens
Does not apply to workers	Does not apply to businesses	Applies to all citizens

Actors and funding

Actors	Funding
National government	National funds

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	No involvement as case not in social partner domain	No involvement as case not in social partner domain
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• No involvement
• Main level of involvement: N/A

Involvement

Case not in social partner domain.

Views and reactions

The Finnish Confederation of Industries (EK) has commented on the government’s budget,stating that they understand the spending increases in exceptional circumstances. However, they remain critical to the increasing fiscal debt. Finnish Electrical Workers´ Union on the other hand had put forward a suggestion to reduce the VAT on Energy from 24% to 10% or even 5% already in August 2022.

Sources

• 22 August 2022: "A way to immediately alleviate the cost burden for the consumer." ("Välitön keino helpottaa kuluttajan maksutaakkaa" (demokraatti.fi)
• 01 September 2022: Amendment budget gives solutions for curbing t,e rise in electricity prices, clean energy, increasing the vitality of eastern Finland and RDI funding. (Budjettiriihestä ratkaisuja sähkön hinnan nousun hillintään, puhtaaseen energiaan, itäisen Suomen elinvoiman lisäämiseen ja TKI-rahoitukseen.) (tem.fi)
• 01 September 2022: The government is reducing VAT on energy (Hallitus laskee sähkön arvonlisäveroa) (www.hs.fi)
• 01 September 2022: Minister Saarikko called for social responsibility from electricity companies (Ministeri Saarikko vaati sähköyhtiöiltä yhteiskuntavastuuta) (yle.fi)
• 01 September 2022: The VAT on electricity is temporary reduced to 10 percent (Sähkön arvonlisävero laskee väliaikaisesti 10 prosenttiin) (www.sahkoliitto.fi)
• 02 September 2022: A burst of critique against the budget amendment. (Hallituksen budjettiesitykselle sataa kritiikkiä) (tem.fi)