Proposals for a new ‘financial tax’ in Sweden have been severely criticised by the Swedish Investment Fund Association, which warns that it could decimate the local industry.
This follows a similar warning from the Swedish Bankers’ Association, which says that “thousands of jobs” in banking could be at risk.
Outlined in a 545 page report (http://www.regeringen.se/contentassets/2d422e1e913e4aef8d3578c89c38e593/skatt-pa-finansiell-verksamhet-hela-dokumentet-sou-201676 ) published following a government-ordered inquiry into the effects of certain value added tax exemptions enjoyed by the financial services sector, the key proposal put forward is for an additional income tax rate of 15% to be implemented on people working in the industry.
This, the inquiry’s report authors argue, would help eliminate a tax advantage enjoyed by the financial sector estimated at over SEK19bn (€1.97bn) by 2018.
But the Swedish Investment Fund Association warns that the tax would lead to poorer choices for investors and actually reduce Sweden’s national tax revenues.
“A Swedish income tax of 15% on employees in the financial sector would hit all fund companies that want to be based in Sweden. But it would suffice for every fifth employee in Swedish fund companies to move from Sweden for the state to lose money on the proposal,” the Fund Association said in a statement.
One of the key concerns is how the tax could impact on competition in the market for funds. Currently, Swedish retail investors enjoy a high level of consumer protection and benefit from high levels of competition, with many foreign fund providers and their funds available in the local market. Swedish investors are used to investing in foreign funds, while Swedish companies are experienced in setting up fund operations in places such as Luxembourg and Ireland.
“Such a significant increase in costs for Swedish fund companies as proposed means skewing competition to [their] detriment.”
And, because this sector of the economy relies on relatively high levels of staffing, any additional tax on incomes will act to stymie its development, the Fund Association adds.
“What we have here is on the one hand an inquiry into funds, which is out for consultation, the objective of which is to increase Sweden’s competitiveness in the European fund market and attract fund companies to establish operations in Sweden. The fund inquiry’s analysis shows that the proposals would lead to rising Swedish tax revenues thanks to growth in the Swedish fund market. On the other hand, we now have a proposal for a punitive tax on employees in the financial sector, which leads to completely the opposite. Personnel costs for fund companies that want to remain headquartered in Sweden would increase by 15% overnight. What effects would that have on household pension savings, private investments, the premium pension and company pensions? That has not even been considered,” said Fredrik Nordström, chief executive of the Swedish Investment Fund Association.
“Our members have indicated that such an encompassing increase in costs, which the proposal suggests, means that they are considering alternatives. Fund operations are easy to move and many countries in Europe are waiting with open arms. An exodus would be an increadibly unhappy development for Sweden and Swedish investors, and not least counterproductive from a taxation point of view. Additionally, the government should in the wake of Brexit instead focus on attracting more financial companies to Sweden. Unchanged or even reduced taxes on employees in the financial sector would probably lead to the number of jobs in Sweden increasing so much that tax revenues would be even higher. Right now we are leaving an open goal for other countries to attract financial jobs from London.”