31/03/2023 by Ragnar Nystøyl
Update about the resource rent tax proposals in Norway and the Faroe Islands
The pre-Easter week of 2023, will not be remembered for the pre-season demand increase as in many of the preceding years, but may be remembered as the salmon-taxation week.
- As to the first point, we have been approaching the Easter in Europe with low availability of salmon, and record-high prices, both during February and the first half of March. During the latter half of March, availability has been improving, but has again met a market with built-in reluctancy to the high price-level, and little activity in retail-campaigns and promotions. Prices, as a result – are still high – but rather on the decline than increasing.
- As to the second point, the salmon world has actually seen two separate bills, or propositions on tax increases - forwarded to the their respective parliaments. A revised and long sought-after clarification came through the government’s proposal in Norway, news which has received lots of media-coverage, and attention.
TAX PROPOSAL IN THE FAROE ISLAND
This marks yet an intermediate milestone, in the ongoing story going on since 28th of September 2022. Already seven month long, this process is now due for the Political logrolling during the next few months. In the Faroe Islands, The government’s proposal subject to stakeholders’ hearing comments, was out on the 8th of March, with a hearing deadline on the 19th of March, with final bill sent to parliament this week. Shorter time, fewer documents, and a far less complex – but still with a substantial, and no less serious - impact on the tax-bill for the Faroese salmon industry.
TAX PROPOSAL IN NORWAY
On Tuesday 28, March, the Norwegian government presented its revised proposal for resource rent tax for the salmon farming industry in Norway. The revised proposal implies lowering the initial proposed tax rate from 40% to 35%, a marginal increase in base deduction (set to NOK 70 million for 2023), norm price council is proposed established, entering into function as from 2024. Furthermore, the amounts spent for purchasing production capacity in 2018 and 2020 will be deductible at 40% over 5 years, according to the proposal. The proposal gives no investment incentives nor stimulation to development major or new growth initiatives outside of the tax subject (such as post-smolt and ocean offshore farming technology) nor incentives on increasing industry sustainability.
Even though the revised proposal is slightly softer than the initial proposal, the general reception on the proposal among main industry stakeholders is that the tax rate is too high, large investments will be cancelled or put on hold and suppliers to the salmon farming industry will be affected.
WHAT ARE THE NEXT STEPS?
The minority government proposing the tax must either seek agreement with left wing socialist party in the parliament (who is in favour of increasing fish farmers’ tax burden, and further than both 35% and 40%) or the conservative party, who is in favour of lowering the tax rate, and to investigate other ways of introducing resource rent tax. When it comes to politics, the outcome is in many cases (also in this case) uncertain. However, based on the fact that the government has softened some of the tax elements in revised resource rent proposal, one should not be surprised if the government turns right (to the conservative party) with the objective to reach a broadest possible agreement.
If invited, the conservative party, however, states its openness for discussion on the resource rent tax. Their initial position is that the tax is not acceptable as it is. What changes have to be made in the proposal in order to reach a resource tax agreement between the government and the conservative party is yet unknown.
While the focus for a while, and especially since the revised resource rent proposal was launched, has been on Norway, a revised resource tax proposition has been proposed by the Faroese government. The revised tax proposition contains the same principles for taxation at the latest proposal, forwarded to a hearing round on the 8th of March, by the recently elected left-wing government elected in mid-December. This proposal was again based on a proposal set forward in October 2022 by the conservative government in seat during last autumn. The major difference was an increased number of applicable taxation rates, where the maximum rate applicable was raised from 10 % of the sales value, to 20 % of the sales value. These higher tax-rate bands (over 10 %) were thought primarily oriented towards scenarios where the spot price levels are DKK25 or higher compared to an estimated cost level (=NOK 35 or higher).
The deadline for interested parties to submit their comments to this latest proposal, was set as short as 10 days later (19th of March), and the proposition to the parliament, has already been published.
The proposition is in total, very similar to the proposal from the 8th of March, at least when it comes to the stepwise taxation rates, with basis in market prices levels that should be multiplied with harvested volumes in HOG-weight. However, a claim arising from the industry, that the methodology where the estimated production cost was based on annual accounts dating 2 years back (i.e applying 2021-accounts to provide a cost base to compare with 2023-prices, has been changed, indicating that more updated cost-estimates (to be calculated on a half-year-basis), should be used instead.