- The tax exemption for financial services in Sweden has led to higher costs for enterprises as they are unable to deduct all incoming VAT against their outgoing VAT, resulting in hidden input VAT costs.
- Large corporate customers are less affected due to their funding costs being determined by international capital markets.
- On the other hand, consumers face lower costs as they pay hidden VAT on input but avoid paying VAT on the value added in the financial sector.
- This exemption has also resulted in a revenue loss of 16-18 billion SEK, with undertaxation of private consumers being higher than over-taxation of enterprises.
- The overall welfare and revenue effects for Sweden are complex, as the exemption may lead to a higher demand for financial services and larger gross profits, but there are also other taxes on financial services that reduce demand.
- Consideration should be given to restructuring taxes on financial services in Sweden to compensate for the VAT exemption, with careful assessment of the consequences for revenues and the structure of the financial sector.
Source Swedish bankers
