The swedish tax system

THE SWEDISH TAX SYSTEM

Dr Erik NorrmanDepartment of Economics

School of Economics and Management

Erik Norrman - School of Economics and Management 2

Contents

A global view The structure of the Swedish tax system Collection, filing and control system Challenges


The Swedish Tax System - a Global View…


GDP of Sweden in 2002Billions per capita per capita PPP

GDP ($) 240 $24,700 $26,000GDP SEK 2339

Public sector: %

Revenues 1195 51

Taxes 854 37

Social security contributions 341 15

Expenditures 1240 53

Transfers 584 25

Public consumption 656 28

Source: Tax Statistical Yearbook


Total tax revenues in Sweden, EU and OECD, 1966-2000, % of GDP


Taxes classified according to national accounts, 2001

Sweden EUIndirect taxes 16,9 14,0VAT 9,0 7,0Excise duties 3,2 2,5Other 4,7 4,5Direct taxes 22,3 14,0Individuals 17,6 10,1Legal entities 3,7 2,6Other 1,0 1,3Social security 14,9 13,1Employer´s contribution 11,6 7,4General social security contributions 3,0 4,2Self employes 0,3 1,5Total 54,1 41,2

Source: Eurostat 2003


Taxes by receiving administrative levelpercent of all taxes, 2001

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

Central government State government Local government Social security funds EU institutions

%

Sweden

EU 15


Tax bases in OECD countriesSource: OECD Revenue Statistics in Member Countries 1999

0% 20% 40% 60% 80% 100%

Canada

United States

Australia

Japan

Austria

Belgium

Denmark

Finland

France

Germany

Italy

Netherlands

Norway

Sweden

Switzerland

United Kingdom

Operating surplus for Spain does only include corporate profits

Consumption Labor Operating surplus


Deviation from average effective tax rate on labor (1999)Source : European Economy EC Commission 2000

-15,0

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

Irela

nd UK

Portu

gal

Gre

ece

Spain

Luxe

mbo

urg

Italy

Nethe

rland

s

Austri

a

Franc

e

Finla

nd

Ger

man

y

Denm

ark

Belgi

um

Sweden

%-p

oin

ts


Deviation from average effective tax rate on capital (1999)Source: European Economy EC Commission 2000

-10,0

-5,0

0,0

5,0

10,0

15,0

Ger

man

y

Spain

Austri

a

Gre

ece

Irela

nd

Franc

e

Belgi

um

Finla

nd

Portu

gal

Nethe

rland

sIta

ly

Sweden

Denm

ark

Luxe

mbo

urg

UK

%-p

oin

ts


Deviation from average effective tax rate on consumption (1999)Source: European Economy EC Commission 2000

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

Spain

Ger

man

yUK

Nethe

rland

s

Gre

ece

Belgi

um

Portu

gal

Italy

Austri

a

Finla

nd

Franc

e

Irela

nd

Luxe

mbo

urg

Sweden

Denm

ark

%-p

oin

ts


The Structure of the Swedish Tax System… The Personal Income Tax

Social Security Contributions The Corporate Income Tax Real Estate Taxation Wealth Taxation Indirect Taxation Transaction Taxes


Indirect taxes

Social security

Direct taxes

Taxes in percent of GDP


Taxation in Sweden year 2002, BSEK

757118

300

Taxes on labor

Taxes on capital

Taxes on goods andservices

64%10%

26%


The Personal Income Tax

National tax on earned income- progressive

Local tax on earned income - proportional

National tax on capital income- proportional

World-wide basis applies


The Dual Income Tax

0%

10%

20%

30%

40%

50%

60%

Earned income Capital income

National tax on capitalincome

National tax on earnedincome

Local tax on earnedincome

Paid on income sharesabove $40,000


Earned Income

Income from employment- wage income- benefits in kind assessed at market value

Income from business activities- as self-employed - as a partner in a partnership


Family Taxation

Spouses as well as children are taxed separately for all income

No spouse allowances

No children allowances


Deductions

No standard deductions Itemised expenditures exceeding

SEK 1,000 may be deducted Commuting expenses exceeding

SEK 7,000 may be deducted Pension contributions up to

SEK 19,000 is deductible


Capital Income

+ Interest payments received

+ Dividends received

+ Capital gains realised during the year

- Interest expenses deductible

= Capital income


Social Security Contributions

Employer´s contributions(pension, health, on the job accidence etc)33 percent

Additional negotiated pension fees Employee pension contribution

7 percent (75% of fee is credited against income tax)


The Corporate Income Tax

Tax rate 28 percent Classical double taxation Special rules apply to closely held

companies Inter-company dividends tax-exempt as

well as capital gains on unlisted companies


Institutional Investment

Life-insurance companies and Pension funds are taxed on a notional basis

Mutual funds and investment companies pay taxes on net interest and dividends received. Capital gains are tax exempt but a notional return is calculated (1,5%-2,0%)


Real Estate

Owner-occupied houses:1,0% of an assessed value equal to 75% of the market value is paid as property tax

Other real estate:0,5% of an assessed value


Other Capital Taxes

Net wealth tax1% of the value above - 1,5 MSEK for individuals and - 2,0 MSEK for spouses

No tax on ”working capital” in unlisted firms or OTC-stocks

Inheritance and gift taxes


Indirect Taxation - VAT

The tax base is harmonised within the EU Tax exempt services are:

- Medicare - Public education- Social care- Financial intermediation- Insurances


VAT - Rates

Normal rate 25% (exclusive basis)

Cultural activities, books and newspapers 6% Personal transportation and foodstuff 12%


Excise Duties

Alcohol Tobacco Energy


Transaction Taxes

On purchase of real estate- individuals 1,5% of acquisition value- legal entities 3,0% of acquisition value

Stamp duty on collaterals for mortgage loans 2%

Collection of Income Taxes - Individuals

1. Preliminary income tax on wage and is withheld by employer each month during the income year

2. The next month the employer pays the withheld amount to the Tax Administration

3. In January (the assessment year) information is sent to the Tax Administration including total income and tax withheld for each individual

4. Filing by individual

5. Final tax is calculated and sent to individual. Preliminary tax is deducted

Income year Year of assessment

1. 2. 3. 5.4.


Collection of Income Taxes - Firms

1. Preliminary income tax based on last years profit or an expected profit is paid each month to the Tax Administration

2. Filing by company/individual for business activity

3. Final tax is calculated and sent to company/individual.

Preliminary tax is deducted

Income year Year of assessment

1. 3.2.


Collection of VAT

+ Value added taxes on sales- Value added taxes on purchases

= Amount to be paid or repaid

Payments are made in March for VATin January and so on

Employers set up one declaration for all taxes

Social securityWage sum 1,000,000Fees 33% 330,000

Withheld income taxesSum of taxes 295,000

Value Added TaxesVAT on sales 25% + 2,500,000VAT on sales 12% + 0VAT on sales 6% + 0VAT on purchases EU + 0VAT on purchases - 900,000Amount to pay = 1,600,000

Specification of sales Within Sweden 10,000,000Tax exempt sales 0Exports 250,000EU goods 700,000EU Services 0

Collection Month: May 2004 Company name: Firm AB Registratio no: 556123-4567

Total amount to pay: 2,225,000


Tax Accounts

Each individual and each company has a separate tax account

All taxes are debited the account

All payments are credited the account

A positive balance is paid out to the holder of the account

Challenges in the Future - Short Term Perspective (1-5 years)

Domestic distortions- Labor supply of low-income individuals- Problems with the Dual Income Tax

International tax competition- Mobile tax bases (firms, financial capital and well- educated labor)- Cross-border shopping

Compliance- Black market activities- International tax evasion


Challenges in the Future - Long-run Perspective (5 years -)

Demographic development causes pressure on expenditures

Demographic development unfavorable for tax base expansion

What kind of tax structure sustains economic growth?

The swedish tax system

Technology

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