Several VAT rules create poor conditions for making environmentally friendly choices and negatively impact the competitiveness of Swedish companies. Procurement and renting of cars are examples of this. We agree with the government that the business sector is part of the environmental movement and welcome proposals that facilitate the transition to electric cars. At the same time, we are surprised by the lack of VAT reforms that address obstacles for companies to transition to more sustainable and environmentally friendly business practices.
VAT deduction is a prerequisite for the VAT system to function as a consumption tax with taxation of value added at each stage. Regarding passenger cars, there are general deduction bans and limitations, where only certain industries are allowed to claim VAT deductions. If a company cannot deduct VAT when purchasing a car, the cost increases by 25%. This can lead to a company having to forgo or postpone investments in more environmentally friendly vehicles. If the investment is still made, a hidden VAT cost arises. This VAT cost becomes a cost component in the price that is taxed again, resulting in double taxation.
In addition to this, there is the excessively high administrative cost of complying with VAT rules, which may lead companies to refrain from claiming possible VAT deductions for car rentals. This is because the practical work and IT costs are estimated to exceed the potential VAT deduction. As mentioned, these rules create poor conditions for Swedish companies to make environmentally sound choices and harm competitiveness (see Installatörsföretagens letter to the government).
Taking inspiration from EU countries with the best rules can benefit both the environment and competitiveness. In a partial study, countries like Germany and the Netherlands are mentioned as interesting examples that do not limit VAT deduction for cars. The study also highlights examples of countries that combine general deduction rights with flat-rate rules when a vehicle can also be used privately.
Why is the government hesitating to implement much-needed VAT reforms? Hindering companies’ transition to electric cars through VAT feels like a very unwise, illogical, and unnecessary uphill battle.
Source: svensktnaringsliv.se
