Inheritance tax in a nutshell is the tax on a deceased’s estate. In other words, It is a tax on property, money, and possessions of someone dead. This tax is assessed on the beneficiaries through inheritance, bequests, and on other occasions through life insurances.
It has been about 17 years since this tax was abolished in 2004. Many Swedish citizens underrated this wise action by its leaders. This may be because today it is easy to work with monetary platforms and even online monetary platforms without fear of unconscionable taxes.
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Below are the reasons why Sweden put an end to Inheritance taxes.
- Inheritance taxes were extremely high
Inheritance tax was first formally enacted and introduced in the year 1985. It was categorized into 3 tax classes where spouses and children were subjected to a maximum rate of 1.5 and other heirs were subjected to a 3 percent rate.
This rate irrationally increased with time to 4% for spouses and children in 1911 and 8% in 1918. In 1933 this tax became an enormous 20% and a wealth tax was introduced the following year. With this steady increase, the tax rate eventually was at a disturbing 70% in the year 1983 for the spouses and children.
This maximum rate was lowered to 60% in 1987 halved to 30% in 1992 and it stayed at 30% till when the Swedish Riksdag decided enough was enough in 2004 to abolish it.
Even though in the modern Swedish state there are some high taxes levied on the netizens none of the taxes levied are as high as inheritance taxes once were.
- Inheritance Taxes were unfair
Inheritance taxes amounted to a practice popularly known as double taxation today which is in simple terms taxation of something already taxed.
The practice was quite unfair to anyone trying to enjoy the proceeds of their property. It has been noted that during some epochs in time when inheritance taxes were still existent in Sweden, the state went as far as carrying out triple taxation.
The same capital an individual had would pay income tax, then savings, and lastly inheritance would be factored in.
The results on the Swedish economy were grave. Inheritance tax caused the economy to dwindle as it was a highly exploitative tax.
Due to the nature of the tax, this resulted in business owners and entrepreneurs spending lots of precious time on matters other than running their businesses.
This prompted many of them to flee the country to safer havens making the state lose further revenue.
- It Generated meager revenue for the State
The collective revenue generated by the inheritance tax was generally little in comparison to other taxes collected by the state then.
Its cumulative was less than 0.2% of the whole revenue in 2004 when it was abolished.
Further, the administration of this tax was quite problematic and complex making it pragmatically impossible for the state to gain the required revenue from it.
The tax burden was oftentimes unfairly distributed and the wealthy members of society were always able to legally evade it through craftsmanship such as tax planning while the middle and lower class citizens had no option but to pay.
The system was by default designed to make the rich stay rich and the poor to remain poor. Such suppression of the poor would of course not amount to a good amount of revenue.
The decision of the Swedish government to repeal the inheritance tax was well informed as the state was not gaining much anyway. The approach taken by Sweden in 2004 has made it a country with a better environment for employment and growth.
But even with that said, Sweden is not yet there. It still has counterproductive taxes affecting proper and free investments. The Swedish citizens are facing the highest marginal tax rate at nearly twice the tax rate anywhere else.
The government should effect the same wise policy that was used in the year 2004. The biggest question is are they brave enough?