The Norwegian Government’s proposed resource rent tax on aquaculture
Press release | Date: 28/03/2023 | Office of the Prime Minister, Ministry of Finance
The Government will today present a bill proposing a resource rent tax on aquaculture. The intention of the proposal is to ensure that local communities along the coast and society as a whole receive a greater share of the value that is created by the fish farming industry. The host municipalities will receive more. The increased revenues will enable the municipalities to invest more in schools, elderly care and other important welfare services for their citizens.
Later today, the Government will present a proposal for a resource rent tax on aquaculture to the King-in-Council. The proposition will then be presented to the Norwegian Parliament (Stortinget).
“We have a long tradition in Norway in which value that is created from using our common natural resources shall benefit society as a whole. Access to our common natural resources has enabled this industry to generate particularly high earnings. All of us should be able to derive greater benefit from the significant value that is created. It is now the time to introduce a resource rent tax for the aquaculture industry,” says Prime Minister Jonas Gahr Støre (Labour Party).
We have made use of the resources provided by the earth, the sea and the forests since time immemorial. In modern times, we have learned to utilise hydropower and wind power, oil and gas.
“The Norwegian model, which involves society as a whole receiving a share of the profits generated from the utilisation of our natural resources, has served us well. The resource rent tax on petroleum has played an essential role in building up the Government Pension Fund of Norway. We are continuing this tradition by also introducing a resource rent tax on aquaculture, which will make it possible to create employment and generate earnings, while local communities and society as a whole are also able to receive a share of this value by making coastal areas available to the industry,” says Minister of Finance Trygve Slagsvold Vedum (Centre Party).
The Government is now making a political decision that will give society as a whole a reasonable share of the value created from our natural resources. The use of our fjords and coastal areas not only provides the opportunity to create commercial activities, but also the possibility of building up society as a whole and local communities.
“Significant value and local employment are created when skilful and industrious people are granted access to our fjords. When there are very high profits from this value creation, parts of these profits are accrued to the local communities and society as a whole, and can be used for funding good schools, a good health care system, elderly care and good welfare services throughout the entire country,” Vedum says.
The primary features of the proposal
The Government proposes setting the tax rate at 35 per cent. Revenues will be based on the market value when fish are removed from the pen, which the companies themselves will set for 2023. From 2024, our aim is to establish an independent price board. A standard deduction of NOK 70 million means that only companies with significant profits will pay resource rent tax. Half of the revenues will accrue to the municipal sector. The host municipalities will receive a greater share. The tax will enter into force from 1 January 2023.
Many submissions during the consultation process
The Government sent a proposal for a resource rent tax on aquaculture for consultation prior to presenting the National Budget for 2023. The Ministry of Finance received about 420 consultation submissions.
“While the basic model remains in place, we have listened to the submissions from the consultation process. We have placed particular emphasis on the arrangement ensuring continued growth, while a share of the resource rent from the aquaculture industry will also accrue to the society as a whole,” Støre says.
The Government has now proposed that the host municipalities should receive a greater share. The natural resource tax that was proposed in the consultation memorandum will not be continued. The Government proposes a slightly lower tax rate and also proposes facilitating the transition to increased overall taxation through a valuation discount for aquaculture licences in the wealth tax.
The municipalities will receive a greater share
The proposal entails that host municipalities and counties will receive more than they do at present. This will be achieved through a significant increase in the production tax (up to 90 øre per kg) and by increasing the municipal sector’s share of the auction revenues etc. from 40 to 55 per cent.
To ensure that the entire aquaculture region receives a greater share than it does at present, the Government proposes that the share of the Aquaculture Fund that is distributed to the counties is increased from 12.5 to 20 per cent. Additional appropriations will ensure that, on the whole, the municipal sector will receive half of the gross revenues.
“It has been of vital importance to ensure that the host municipalities receive a greater share of the revenues, which they can then spend on schools, elderly care and other important welfare services for their citizens. At least half of the revenues that come in will be returned to the municipal sector,” Vedum says.
“Our goal is that those who make the fjords available to fish farmers, will derive greater benefit than what they do under the present arrangement,” Vedum adds.
Revenues from the resource rent tax
“The aquaculture industry is one of Norway’s largest and most profitable industries. The average returns generated in this sector during the last decade have been 3-4 times higher than in manufacturing. A larger share of this should accrue to society as a whole, while at the same time we also support the industry continuing to develop and create jobs and value along our coast into the future,” Støre says.
One advantage of the resource rent tax is that it automatically adapts to profits in the industry. The objective is not to collect a specific amount in tax revenues, but rather a share of the value created.
There will be high tax revenues in years with high sales prices and high resource rent, while tax revenues will be low during years of low resource rent. Among other things, the tax revenues will depend on developments in prices and costs, and will therefore fluctuate from year-to-year.
The primary features of the Government’s proposal
The design of the resource rent tax:
- The tax will be structured as a cash-flow-tax with immediate deductions for investments that are only used during the sea phase.
- The effective tax rate shall be set at 35 per cent, i.e. lower than the 40 per cent tax rate in the consultation proposal.
- Deductions will be granted for investments made prior to 1 January 2023 through depreciation of remaining tax values.
- No deductions will be granted for the value of fish farming licences, however a template deduction in revenue will be permitted for licences purchased at auction in 2018/2020 and allocated at fixed prices in 2020. The deduction is set at 40 per cent of the actual remuneration paid to the central government divided over five years, and is a change to what was stated in the consultation proposal.
- An independent price board will be established to determine the correct revenue. This board will be tasked with setting the market value when the fish are removed from the pen, and will apply for salmon, trout and rainbow trout from 2024. Regulations relating to the price board will be sent out for consultation. For 2023, the companies themselves will set the market values when fish are removed from the pen, and these will be used as a basis in the tax return in accordance with general self-reporting. The Government has moved away from the proposal of using norm prices based on Nasdaq prices.
- Negative resource rent will be able to be carried forward with interest, and if activities cease the tax value of the negative resource rent will be disbursed. The Ministry will assess how a disbursement claim at cessation could potentially be mortgaged.
- A standard deduction of NOK 70 million shall ensure that only companies with significant profits will pay resource rent tax. The standard deduction outlined in the consultation memorandum was either NOK 54 million or NOK 67.5 million.
Production tax and distribution of revenues between the central government and municipal sector:
- The production tax will be set at 90 øre per kg. The tax generates stable revenues for the host municipalities and county authorities. The production tax can be deducted krone for krone from the resource rent tax that is determined.
- A natural resource tax will not be proposed. The production tax of 90 øre per kg is lower than the aggregate total of the production tax and natural resource tax in the consultation proposal (112 øre per kg). Under this proposal, companies that are not in a position to pay resource rent tax will therefore pay slightly less tax than in the consultation proposal.
- The share of auction revenues etc. for municipalities and county authorities will be increased from 40 to 55 per cent. Together with the production tax and additional appropriation, this will contribute to half of the gross revenues from the resource rent tax accruing to the municipal sector.
- The share of the Aquaculture Fund distributed to the counties will be increased from 12.5 to 20 per cent.
Resource rent tax
Natural resources belong to the society as a whole. The production of natural resources such as oil, gas or hydropower can often generate extraordinary profits because production is based on a finite resource. These extraordinary profits are often referred to as resource rent. A resource rent tax (special tax) enables a share of these profits to be returned to society as a whole.