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TAXES

Denmark raises tax deduction for commuters amid high fuel prices

The Danish government’s tax council on Tuesday decided to increase the rate for tax deductions given to commuters, due to high fuel prices.

expensive petrol in denmark
Denmark is to give higher tax subsidies to commuters due to high fuel prices. The cost of a litre of petrol exceeded 16 kroner in March 2022 and is currently around 15 kroner. Photo: Bo Amstrup/Ritzau Scanpix

The government organ Skatterådet, a tax council whose responsibilities include deciding certain subsidy rates, agreed on Tuesday to increase a tax deduction given to commuters who travel over a certain distance to work.

People who travel between 25 and 120 kilometres to and from work will now be able to claim 2.16 kroner for each kilometre they travel. That is an increase of 18 øre (0.18 kroner) on the existing rate.

The decision was confirmed my Skatterådet in a press statement.

The commuter deduction, termed kørselsfradraget in Danish, is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail and car journeys alike. The deduction is always calculated based on kilometres travelled if the journey was made by car, even if it was actually made by train.

Commuters can claim the deduction if they travel over 24 kilometres to get to and from work over (12 kilometres each way). 

An equivalent tax deduction for commuters who use their private vehicles to get to work, the befordringsgodtgørelse, will also be subject to increased rates settled on by the tax council, with the rate raised by 19 øre to 3.70 kroner per kilometre, though this will not be applied retroactively through the tax year.

READ ALSO: Four ways to (legally) lower your tax bill in Denmark

Only twice previously in the last 20 years have the tax deductions been extraordinarily changed in the middle of the tax year, Skatterådet said in the statement.

They are usually set in November based on projections of the price of fuel throughout the coming year.

Recent months have seen the cost of both petrol and diesel increase significantly, caused in part by the Russian invasion of Ukraine.

Prime Minister Metter Frederiksen earlier this week said she wanted the tax subsidies to be raised, while the opposition Liberal party also backed the decision in comments to news wire Ritzau. Liberal tax spokesperson Louise Schack Elholm said “We would naturally have like it to be more. But this was what could be managed”.

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The interest organisation for motorists, FDM, has criticised new rates for commuter tax deductions, saying the amount by which taxes will actually be reduced will be marginal.

FDM says that higher deduction rates will save commuters an average of 30 kroner – enough to buy around 2 litres of petrol at current prices – per year. The figure comes from the organisation’s own calculations.

It should be noted that the size of the tax deduction changes depending on the distance travelled.

The commuter deduction, termed kørselsfradraget in Danish, is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail, car, bus and bicycle journeys alike. The deduction is always calculated based on kilometres travelled if the journey was made by car, even if it was actually made by other means like rail.

Commuters can claim the deduction if they travel over 24 kilometres to get to and from work over (12 kilometres each way). Travel can be registered and deductions calculated within the forskudsopgørelse or preliminary tax return on the skat.dk website.

READ ALSO: Forskudsopgørelse: Why checking your preliminary Danish tax return matters

An equivalent tax relief, befordringsgodtgørelse, is available to commuters who use their private vehicles for work purposes.

The rates for the two deduction types change depending on the distance travelled. You can see the various rates and compare the 2022 and 2023 on the Danish Tax Authority website.

For example, the tax deduction for trips between 25 and 120 kilometres in 2022 is 2.16 kroner per kilometre. It will increase to 2.19 kroner per kilometre next year.

FDM’s consumer economist Ilyas Dogru told news wire Ritzau the organisation did not understand why the travel deductions “are increasing so slightly”.

The organisation based its calculation on a commute of 50 kilometres per day.

The rates for both types of commuter deduction are determined by government organ Skatterådet, a tax council whose responsibilities include deciding certain subsidy rates.

The Tax Council raised the deduction rates based on higher fuel prices as well as increasing maintenance costs for vehicle owners.

They were last increased in April this year in response to spiralling fuel costs following the Russian invasion of Ukraine. The deduction rates are not normally changed during a tax year.

Costs are expected by the Council to continue to increase, and the deduction rates will therefore go up again in 2023.

But the higher deductions do not cover the increased costs experienced by motorists, FDM argues.

“Commuting is important for the mobility of labour,” Dogru said, adding that people are willing to travel further to work if their transport expenses are more adequately covered.

“When we see higher prices in society, that should be reflected in the commuter deduction. And if the price of fuel falls, on the other hand, that should also be reflected,” he said.

Around 1.2 million taxpayers in Denmark claim tax deductions yearly for commuting or for using their private vehicle for work purposes.

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