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Tax deduction for household services (Lag 2007:346 om skattereduktion f”r hush†llsarbete), in Swedish often called RUT

Country of implementation
Sweden
General short description of the innovation
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 (not those living in rented properties); ? 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 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. / / ROT: Taxpayers are entitled to deduct 50% of the price of domestic services up to SEK 100,000 (more than ?11,000) per person per year if the service company has a business tax certificate/business licence. Access to the services covered by this legislation is not subject to needs assessment by local authorities, which means the tax deduction can be claimed by all citizens, and services are not regulated by the state or local / authority. The services may be carried out in the purchaser?s own home or in a parent?s home. The tax deduction can be claimed for domestic help as well as for personal care (Government Bill 2006/07:94). / This reform interacts with eldercare services in that the tax deduction (in many municipalities) makes it cheaper for older people with higher incomes to buy services in the private market than it would be if they used the needs assessed home care services ? at least if they have minor care needs. In municipalities with a system of choice model, the credit halves the cost for the individual of the extra services that a private (but not public) provider may offer the home care user to ?top up? the needs assessed home care (see discussion in Meagher & Szebehely 2013, p 72).
Target group
Total Population
Policy Field
  • general fiscal
  • social
Type of Policy
  • private for profit
Duration of the policy
The RUT deduction was implemented on 1 July 2007 and the ROT deduction on 8 December 2008. (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.
Scope of innovation
  • Scope: structural
  • Budgets: 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).
  • Spatial coverage: home owners and tenant-owners on national base (limitation see abov)
General description of (intended) objectives and strategies
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. /
Nature of the innovation-short-term perspective
longterm
Type of innovation
  • retrenchment or expansion of an existing/earlier policy
New outputs
  • regulations of the labour market (tax deduction on labor costs, it is about diminishing undeclared work and boosting employment in the sector)
  • subsidies/tax-credits
Intended target group
home owners and tenant-owners
Actors involved in policy-making/implementation and/or evaluation
  • beneficiaries/users
  • private for-profit organisations (commercial)
Clarification of the role of various actors
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.
Intended output
  • others (As Statistics Sweden showed, high income earners claimed the tax deduction in higher degree)
Did the innovation have any outcome related to job quantity?
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).
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