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Taxation of perks to favour more environmentally-friendly transport

The government hopes that from next year more employer-subsidised cars in Finland will be fully electric.

Sähköautoja latauksessa.
A fully electric vehicle as a company car will likely make even more sense next year. Image: Tore Meek / EPA

About one-fifth of all new cars registered in Finland each year are classified as company cars that are provided to employees and taxed as a work-related benefit.

As part of its draft budget for next year, the Finnish government intends to put forward a bill to further help wean the nation off fossil fuels and encourage companies to buy electric cars.

Changes are also in the works to promote expanded use of public transport and bicycles to travel to and from work.

Under the proposal, the tax value of fully electric company cars would be reduced for at least the years 2021-2023. Cars registered in 2020 will also be eligible for the tax break for the same period.

In addition, users will be able to charge electric and hybrid cars at the workplace and at public charging points tax-free.

The tax value of on-the-job charging is currently 30 euros per month. This benefit will also be valid for a limited period, 2021-2023.

"Tax subsidies for electric cars aim to reduce emissions as much as possible. In rechargeable hybrids, emissions depend on how much they are charged and used with electricity. In addition to electric cars, the charging benefit also applies to hybrids," says Timo Annala, a consulting official at the Ministry of Finance.

"Low-hanging fruit"

Car importers say that the government's proposal is on the right track.

"This is low-hanging fruit that had to be picked. So the reform is definitely in the right direction. This will move the range of company cars towards electric vehicles," says CEO Tero Kallio of the Association of Automobile Industry in Finland.

At the same time, Kallio predicts that many who would have the opportunity to drive a company car, but have so far driven their own car and claimed mileage allowances, will likely opt to use a company car and specifically an electric car.

For example, if an employee's salary is 3,000 euros per month and the tax value of a petrol company car is 650 euros per month, then the employee's tax rate is determined on the basis of a monthly salary of 3,650 euros.

By opting for a fully electric car with the same tax value, the amount of taxable salary will be reduced by 170 euros per month. Depending on employment contract terms, paid salary may increase by 170 euros.

The bill does not offer the employer specific incentives to favour electric cars though, Kallio points out.

"For an employer, fully electric cars are still a little more expensive to lease or buy, but on the other hand, for the employer, operating costs for electric cars are lower than for internal combustion engines. The reform would have been more effective if the 2,000-euro subsidy for private purchase of an electric car had been extended to employers," Kallio says.

Tax breaks for bikes, public transport tickets

There are no statistics on the number of employer-supplied bicycles in the country. Nevertheless, the government wants to encourage cycling as well.

Under the new proposal, the a bicycle benefit would be tax-free up to a value of 750 euros per year.

At present, a bicycle benefit received from an employer is regarded as fully-taxable earned income.

Tax benefits for employer-provided bicycles are quite common elsewhere in the EU, for example, in Belgium, the Netherlands, Austria, Germany, the United Kingdom and Ireland.

Currently, employer-paid passes for travel on public transport is tax-free up to 300 euros annually. It is now being proposed travel tickets would be classified as tax-free income up to a value of 3,400 euros per year.

It is expected that following the change, tens of thousands more people will use employer-paid public transport, a major increase from the current 100,000 or so employees who enjoy this benefit.

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