VAT and income tax to decrease? Skip to content

VAT and income tax to decrease?

Fréttabladid reports that income tax will decrease by 2% next year. Work is in progress to lower the value added tax (VAT), and a decision by how much is pending.

While signing the Icelandic Telecom deal, on Friday, Geir H. Haarde, finance minister, said that the sales proceeds would be spent to benefit the public. Asked whether the money would be used to lower taxes, Geir said, “This is a one time payment and it is not possible to use it for permanent dispensation, neither for operations nor something similar, therefore I believe that it is not realistic to use this capital to finance a permanent tax decrease. A program on decreasing taxes is underway, it is going well, of course we could and should do more in that regard, but we will not do that with this money”

Asked whether a tax decrease is to be expected soon, Geir said, “I believe so”.

According to Fréttabladid the Ministry of Finance has decided to put forward a proposal for a 2% decrease in income tax. Fréttabladid also reports that according to its sources VAT will be decrease substantially. Standard VAT in Iceland is 24.5% with a 14% category for food. It is expected that the proposals will be put on the agenda of the finance committee of parliament when parliament reconvenes in the fall.

The principal direct taxes in Iceland are individual income tax (the regular rate being 38%) and corporate income tax (18%). Individual income tax is divided between a national tax of between 25 – 27% and municipal income tax at an average rate of about 12%.

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