Borg plans to remove unpopular tax

An unpopular tax on the wealth of small business owners will be abolished, finance minister Anders Borg has announced.

The so-called Lex Uggla tax relates to wealth tax for people who own small businesses. The tax was named after singer Magnus Uggla was ruled by the tax authority to have put some of his private wealth into his company to avoid wealth tax. Some 35,000 companies are affected by Lex Uggla.

Borg said in a debate in the Riksdag on Friday that the current rules create uncertainty over the amount of money that can be put into companies without increasing the owner’s liability to wealth tax. This in turn creates uncertainty for people who wish to expand their businesses.

“The rules will be the same for all capital in unlisted companies,” Borg said.

The cost to the state of abolishing Lex Uggla is estimated at between 20 and 30 milion kronor, but Borg said that much of this is simply a paper cost, as the tax is hard to enforce. Legislation to remove the tax will be presented in 2007, with the new rules applying from the 2008 taxation year.

Borg said he did not believe that people would use the new rules as a means of avoiding wealth tax by investing in companies. He pointed out that such behaviour was not particularly profitable given other tax rules and given that wealth tax on financial assets will be halved in 2007.

The government has said it intends to abolish wealth tax, but it could take a while before this becomes reality.

“That process lies some way in the future,” said Borg, arguing that other costly reforms are more urgent.