Barbershops and some small repair services like shoemakers had a lower VAT (Value added tax) during the time 1.1.2007-31.12.2011 (Murtomäki, Otto. Yrittäjän arvonlisäverokirja 2010) . Their VAT was only 8-9 percent then, when normal VAT for services was 22-23 percent. 1.1.2012 hairdressers VAT was raised back to 23 percent and 1.1.2013 to 24 percent. Why?
Reducing VAT was part of a trial in EU area. The idea was to test if it’s possible to get more jobs and customers to business sector by lowering value added tax.
Interest group of Finnish hairdressers, Suomen Hiusyrittäjät ry, is worried about results of rising VAT back to the same level than other services. In YLE News article 24.3.2013 they say that people are not visiting hairdresser as often as they used to, which causes problems to small hairdressing saloons and some hairdressers have been forced to start their own business instead of having an employment relationship.
On the other hand, Tuomas Kosonen in his publication and research to VATT (Government Institute for Economic Research) “What was actually cut in the barbers’ VAT cut?” in 2010 says that aimed goals were not reached. Barbershops cut their prices only 7,2 percent when the benefit businesses got from lowering VAT was 11,5 percent. Better employment was not achieved either.
In my opinion, it’s easy to believe that reduction of tax didn’t show in consumer prices as much as it should, for example when VAT of groceries was reduced in 2009 prices of groceries got even cheaper (-5,6 %) than what was the advantage to companies (-4,3 %) and consumers and whole business area was very satisfied. It’s also difficult to see why only hairdressers would be entitled to lower VAT, while for example beauticians have had normal value added tax all the time. But still, VAT rising from 8 percent to 24 percent in few years is a huge strain for small companies. Especially many new firms founded during lower VAT were not prepared well enough for the end of this trial.