Tax deductions for domestic service work, Sweden
Undeclared work accounts for about half of the total tax gap in Sweden and the country has taken important measures to tackle undeclared work, especially in sectors such as commerce, construction and other sectors with high cash turnover. From 8 December 2008, Swedish citizens can apply for a tax deduction amounting to 50% of the labour cost for renovations, repair, cleaning, maintenance work on homes, etc. This measure aims to boost employment and transforming undeclared work to legal work.
In Sweden, the domestic services sector, such as home repairs, cleaning, and home maintenance have traditionally been a sector where work to a large extent is carried out undeclared (the Swedish Tax Agency, 2011). In light of this, the Swedish government introduced a tax deduction on household services (RUT) with the aim of combating undeclared work and boosting employment in the sector. The RUT deduction was introduced on 1 July 2007. The tax relief on home repair and maintenance (ROT) was originally initiated in the 1990s as a temporary measure to boost employment in the construction sector. Since then, the measure has been on and off but was implemented on a temporary basis on 8 December 2008, as a consequence of the economic crisis.
The aim of the measure is to transform black-market work to white-market work and increase employment in this segment of the labour market. Target groups include individuals who at a cheaper price can buy services covered by the RUT and ROT as well as companies in the covered sectors. The cheaper price is expected to increase the demand and consequently boost employment.
The RUT deduction was implemented on 1 July 2007 and the ROT deduction on 8 December 2008. The joint term for ROT and RUT is tax deduction for domestic services. Domestic work or ‘housework’ (in Swedish: husarbete) is, hence, a general term for household work and renovation work. For these jobs, tax deductions can be given for labour costs. The following activities count as housework:
- repair and maintenance, modifications, extensions (ROT). Only available for home owners and tenant-owners;
- cleaning, laundry, basic gardening, babysitting and other oversight (RUT).
The tax reduction amounts to 50% of the labour costs up to a maximum threshold of approximately SEK 100,000 (€11,850) which is equivalent to a maximum tax reduction of SEK 50,000 (€6,000) for each individual in one year.
In the government bill from 2007 where the RUT deduction was proposed, the measure was estimated to cost SEK 1.3 billion per year (€155 million). The ROT deduction was in the spring budget bill in 2009 calculated to SEK 13.5 billion per year (€416 million) (Swedish Tax Agency, 2011).
As of 1 July 2009, companies performing the domestic work charge the customer the costs of materials and half the labour costs, including VAT. The company requests the outstanding sum from the Swedish Tax Agency. As a result, the customers only pay half of the labour cost at the point of the purchase of the service.
Outcome of evaluations: lessons and conclusions
Achievement of objectives
In an interview survey from 2011, the Swedish Tax Agency investigated how the housework deductions have affected undeclared work. The result is compared with an interview survey conducted in the previous mentioned report ‘Purchasing and performing undeclared work in Sweden’ from 2006 (data collected in 2005).The result shows that the occurrence of undeclared work has decreased by about 10% between 2005 and 2011, within the categories of jobs covered by the ROT and RUT deduction. Moreover, of the buyers of ROT 6% indicated that the work would not have been performed unless they had access to the deduction. This corresponds to 44,000 jobs, or 2.6 million working hours (Swedish Tax Agency, 2011).
The general level of acceptance within the society of buying undeclared domestic services has according to the report also decreased. Nine out of 10 respondents indicated that it is wrong to buy repair, maintenance and cleaning services undeclared. This result is similar to a survey among the general public by the Employer and Trade Organisation for the Swedish Service Sector (Almega) (2009) which shows that the legitimacy for undeclared household services has decreased (Swedish Tax Agency, 2011)
In the autumn of 2011, the Swedish Federation of Business Owners (Företagarna) conducted a survey among 2,447 member companies in the construction sector. The result showed that nearly 90% of the surveyed companies felt that the ROT-deduction had a positive impact on reducing undeclared work in the sector, compared to 78 % in 2009 (Swedish Federation of Business Owners, 2011).
Obstacles and problems
The Swedish Tax Agency has discovered frauds and cheating. For example, companies have requested money from the Swedish Tax Agency using the social security numbers of individuals who have not made use of the deduction. Another type of scam is to list costs for material, which do not justify deductions, as working time.
A new invoice model, introduced 1 July 2009 has been criticised by business organisations for increasing the administrative burden and consequently the costs for the companies.
The new invoice model implies that the customer pays 50% of the labour costs at the point of the purchase of the service. Consequently, the seller is required to request the outstanding sum straight from the Swedish Tax Agency. This invoice system replaced the previous one where the customer paid the whole sum to the seller and then requested the outstanding sum.
In 2010, 1.1 million people bought household services with tax deduction (RUT and ROT). In 2010, the Swedish Tax Agency paid out SEK 1.4 billion (€166 million) in RUT deduction and SEK 13.5 billion (€1.6 billion) in ROT deduction. This means that around 7.6 million hours of cleaning and household (ROT) services and 53 million hours of renovation work (ROT) were performed.
In the government bill from 2007 where the tax deduction for the RUT-sector was proposed, the measure was estimated to cost SEK 1.3 billion per year (€155 million). The corresponding number for the ROT-deduction was in the spring budget 2009 estimated at SEK 3.5 billion (€416 million) per year. The result for the RUT sector appears to comply rather well with the original estimate, while the outcome in the ROT sector has been significantly higher than the original estimate (Swedish Tax Agency, 2011).
Similar measures have already been initiated in Finland and Denmark.
- The Swedish Tax Agency (Skatteverket)
- the initiated measures, especially the RUT and ROT deductions, are effective to combat undeclared work and create jobs is a contentiously politically debated issue. The RUT deduction was initiated by the centre-right government while the ROT deduction has existed before as a temporary measure during the previous Social Democratic government. The current opposition has traditionally opposed the RUT deduction but has now announced that the measure may remain, with modified rules, in case of a power shift in the next election.
Almega, Hemservice - Attityder och fakta kring hushållsnära tjänster, http://www.almega.se/politik-och-ekonomi/rapporter/hemservice-attityder-och-fakta-kring-hushallsnara-tjanster
European Employment Observatory (2007), Article on Undeclared Work from SYSDEM Correspondent,
Motion 2011/12:Sk399, Åtgärder mot skattefusk och svartarbete http://www.riksdagen.se/sv/Dokument-Lagar/Forslag/Motioner/tgarder-mot-skattefusk-och-sv_GZ02Sk399/?text=true
SOU 2005:35, Krav på kassaregister - Effektivare utredning av ekobrott
The Swedish Federation of Business Owners, ROT-avdraget skapar flera vita job, 2011.
The Ministry of Finance, Omvänd skattskyldighet för mervärdesskatt inom byggsektorn, Prop. 2005/06:130.
The Swedish National Council for Crime Prevention, Storskaliga skattebrott – en kartläggning av skattebrottslingens kostnader, 2011:7.
The Swedish Tax Agency, Konsumenterna kan skapa schysst konkurrens och minska skattefelet, 2011.
The Swedish Tax Agency, Om RUT och ROT och VITT och SVART, Report 2011:1.
The Swedish Tax Agency, Omvänd skattskyldighet för mervärdesskatt i byggsektorn, 2010.
The Swedish Tax Agency, press release 27 June 2011, Fusk med kassaregister kostar 20 miljarder årligen http://www.skatteverket.se/omskatteverket/press/pressmeddelanden/riks/2011/2011/fuskmedkassaregisterkostar20miljarderarligen.5.70ac421612e2a997f85800093633.html
The Swedish Tax Agency, Purchasing and performing undeclared work in Sweden, 2006:4.
The Swedish Tax Agency, Tax gap map, 2008:1.
The Swedish Tax Agency’s website: http://www.skatteverket.se/foretagorganisationer/startadrivaavslutaforetag/kassaregister.4.121b82f011a74172e5880005263.html
The Union of Construction Managers, Okunskap föder svartarbete, 29 February 2012, http://www.byggbranschenisamverkan.se/nyhetsarkiv/okunskap-foder-svartarbete__170