The Right VAT Related Understanding for Business
Prices for private social and health services include latent VAT at an average of 8%. Service providers providing VAT-free services cannot deduct VAT on purchases of goods and services or capital goods in their own taxation. A similar phenomenon also applies to private service providers providing school meals.
The Best Prices
Prices for private social and health services include latent VAT on average 8%. Service providers providing VAT-free services cannot deduct VAT on purchases of goods and services or capital goods in their own taxation. A similar phenomenon also applies to private service providers providing school meals.
- According to the general principles of the VAT Act, sales in the form of business are subject to VAT.
- Some activities are excluded from taxation by law. These include private sales of goods and services related to health and medical care and social welfare.
- The background to VAT exemption is the EU VAT Directive. According to it, Member States may, by national decisions, exclude certain private activities from the exemption, but in Finland the scope of the exemption is not limited.
- Common to private tax-free social and health services is that the production of services is subject to licensing, controlled by public authorities and often at least partly financed by public funds.
Latent VAT raises prices
It follows from the VAT exemption of the sale of private social and health services that VAT on supplies for the production of services cannot be deducted for tax purposes. As a result, there is a hidden VAT on purchases in the sales prices of services. Its size depends on the company’s industry and how they have organized their operations.
A hidden tax raises the prices of end products in the eyes of the consumer and does not necessarily encourage private operators to organize their service production in the most sensible and efficient way possible.For consumers, this has been exacerbated by the fact that reimbursements under the Health Insurance Act for private or dental fees have fallen to a fraction of actual costs.
Especially the decisions of the Finnish government to cut private medical care reimbursements in 2015–16 have been of great importance. As a result of the surgeries, the number of client visits collapsed, especially in private dental care. The measures were taken, although the possible transition to a new customer selection system for dental care will not take place until the beginning of 2022. The use of the small business tax rate is there also.
Affects municipal outsourcing and purchasing services
Latent VAT may also have distorted competition between municipal and private service providers. Municipalities have had the right to deduct VAT in full from their own social and health care production costs. This may have reduced municipal outsourcing or the willingness to procure private purchasing services for their own service production.