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Increased resource rent tax on hydropower

The Government is proposing to increase the effective resource rent tax rate on hydropower from 37 per cent to 45 per cent, with effect from the 2022 fiscal year.

The Government believes it is reasonable for a larger share of the return on hydropower to accrue to society as a whole. A permanent increase in the resource rent tax rate will generate greater revenues for the central government budget for many years to come. The proposal will increase the tax revenues with approximately NOK 11 billion annually.

The Government also proposes that revenue from the sale of guarantees of origin be included in the resource rent tax basis. Small hydropower stations do not pay resource rent tax and are therefore not affected by the proposals.

More details about the proposal

The resource rent tax rate will be increased to achieve an effective resource rent tax rate of 45 per cent.

Corporate tax is calculated before resource rent tax on hydropower, and resource rent-related corporate tax is deducted from the basis for resource rent tax. An effective resource rent tax rate of 45 per cent therefore means that the formal resource rent tax rate is set at 57.7 per cent.

The total marginal tax (resource rent tax and corporate tax) will then be 67 per cent for hydropower, i.e. 11 percentage points lower than the total marginal tax for the petroleum sector. There is a proposal for a high-price contribution in addition to this.

Anticipated revenues

Under current tax rules, the revenues from the resource rent tax are estimated at around NOK 53 billion in 2022, which is around NOK 45 billion more than the average for 2010–2021 (measured in NOK for 2023).

It is estimated, with a degree of uncertainty, that the increase in the resource rent tax rate will increase revenues by NOK 11.2 billion accrued in 2022, which will be booked in its entirety in 2023. The proposal is not expected to involve significant administrative costs.

It is estimated, with a degree of uncertainty, that the proposal to include guarantees of origin in the resource rent tax basis will increase revenues by around NOK 1 billion accrued in 2023 and booked in 2024.

Effects on the municipal sector

The resource rent tax on hydropower is deducted from the basis for property tax. Increased resource rent tax will therefore, in isolation, lead to a reduction in property tax revenue for the municipalities. The deduction for resource rent tax in the calculation of the property tax basis is calculated as an average over five years, so it will be some time before the full impact of the increased resource rent tax is reflected in the property tax basis. This change will not affect the property tax for power stations where the property tax is calculated according to the minimum or maximum rules (which establish a floor and a ceiling for the property tax basis).