Amendment to the Budget 2006 - Tax policy

Historical archive

Published under: Stoltenberg's 2nd Government

Publisher: Ministry of Finance

Press release | Date: 10/11/2005 | Last updated: 11/11/2006

Press release

No.: 89/2005
Date: 10.11.2005
Contacts: Runar Malkenes, telephone + 47 22 24 41 09 / mobile ph. + 47 95 21 42 83,
Hans Henrik Scheel, telephone + 47 22 24 45 52 / mobile ph. + 47 91 35 32 85

Amendment to the Budget 2006 – Tax policy

The Government aims at bringing the overall level of taxation back to the level of 2004. This is estimated to entail an increase in the tax level by some NOK 4.9 billion on an accrued basis compared to 2005, of which NOK 3.0 billion is included in the Government’s proposal for 2006. Compared to the former government’s tax proposals, total tax revenue is estimated to be NOK 9.7 billon higher in 2006 on an accrued basis, of which NOK 3.6 billion stems from tax on labour income, NOK 2.9 billon from wealth and inheritance tax, and NOK 1.9 billon from tax on business income.

Tax reform
The Government will implement the main remaining features of the tax reform, which was presented to the Storting in March 2004 by the former government (Report no. 29 (2003-2004)) and endorsed by a majority in the parliament. The main objective of the reform is to achieve a more efficient and fair tax system, inter alia by removing the possibilities for active owners and self-employed to have labour income taxed as capital income at a much lower rate. The maximum rate differential between capital income and labour income is 33.5 percentage points in 2005.

In line with the proposal for 2006 from the previous government, the maximum marginal tax rate (including employer’s social security contribution) will be reduced from 61.5 per cent to 54.3 per cent. Combined with the approved tax on returns on shares above the risk-free interest rate and on corresponding income for self-employed, which implies a 48.2 per cent marginal tax rate on returns to individuals, it is possible to abolish the prevailing splitting of business income of self-employed into capital and labour income (the split model).

Tax on labour income
The Government proposes to reduce the surtax by 3 percentage points (from 12 per cent to 9 per cent) in bracket 1 and by 3.5 percentage points (from 15.5 per cent to 12 per cent) in bracket 2, compared to 2005. The overall surtax reduction is estimated to about NOK 3.3 billion. Compared to the former government’s proposal, the revenue from the surtax is estimated to increase by about NOK 2.3 billion.

It is proposed to increase the basic allowance for wage income by increasing the rate from 31 per cent to 34 per cent and the upper limit from NOK 57,400 to NOK 61,100. This is estimated to entail a tax reduction of just over NOK 1.2 billion compared to 2005, and a tax increase of about NOK 1.3 billion compared to the former government’s proposal.

The Government maintains the former government’s proposal of abolishing the supplementary employer’s National Insurance contribution on high wage income.

Wealth and inheritance taxes
The former government announced to halve the revenue from the net wealth tax by 2007, and proposed to implement about half of this reduction (NOK 1.9 billion) in 2006. In the amended budget the net wealth tax is proposed increased with NOK 260 million compared to 2005. The Government emphasises that the wealth tax in principle has good redistributive effects. However, the taxable value of wealth varies strongly between different wealth components, which weakens the redistributive effects and potentially distort investments. The Government proposes to increase the taxable value on houses and property by 25 pct., and to increase the taxable value on shares from 65 per cent to 80 per cent of market value. The basic allowance is increased from NOK 151,000 to NOK 200,000.

The Government does not maintain the former government’s proposal of reducing the inheritance tax with about NOK 690 million. The proposal of introducing a grace period for the payment of the inheritance tax on family-held businesses is however kept in the amended budget.

Business taxation
The Government withdraws the former government’s proposal to increase the depreciation rate for machinery etc. from 20 per cent to 25 per cent.

Tax bases
There are two tax bases for individual tax payers. Ordinary income consists of all types of taxable income after deductions (basic allowances, interest expenses etc.). All individuals and companies pay a tax rate of 28 per cent on ordinary income. Personal income includes income from work and/or pensions with no deductions. Surtax and social security tax are levied on personal income.

The Government proposes some changes in order to broaden the tax base, including removing tax exemptions or increasing taxation of some fringe benefits. The proposals include among other things increased taxation of telephone expenditures and PCs paid for by employers and abolishing the tax exemption for free diet for employees on the continental shelf and for the special wage supplements for seamen.

Indirect taxes
In total, the Government’s proposal to changes in indirect taxes will increase revenue by about NOK 2.6 billion.

Value Added Tax (VAT) - The halving of the rate of Value Added Tax (VAT) on food as of 1 July 2001 does not appear to have been fully passed on to consumers. Reduction of the rate from 12 to 11 percent as from 1 January 2005 has not resulted in demonstrably lower consumer prices on food. The Government proposes to increase the VAT rate on food from 11 percent to 13 percent. The Government also proposes to increase the lowest VAT rate from 7 percent to 8 percent. Accommodation services will be brought into the VAT system at a rate of 8 percent as of 1 September 2006 (as of 1 January in the former government’s proposal). The proposal entails considerable administrative simplifications, and resolves new demarcation problems resulting from a judgment recently passed by the Supreme Court (the «Porthuset Judgment»). In addition, it is proposed that VAT will be introduced on the use of mobile telephones abroad by subscribers domiciled in Norway.

Environmental taxes - The Government proposes to increase the rates of CO2 and SO2 tax for domestic sea transportation of goods, the supply fleet and national aviation to the same level as for mineral oil. The Government emphasises the role of environmental taxes and tradable emission permits to motivate firms and individuals to more environmentallly friendly behaviour. Such instruments also secure that environmental goals are reached at lowest possible costs. The main challenge in terms of Norway’s obligations under the Gothenburg Protocol is to fulfil the obligation to reduce NOx emissions. The Ministry of Finance will therefore consider taxes differentiated according to NOx emissions in cooperation with affected Ministries.

Motor Vehicle taxes - The Government proposes to introduce a registration tax on vehicles with a total weight between 3,5 and 7,5 tons corresponding to 20 percent of the tax on passenger cars. Furthermore, it is proposed that the annual tax on motor vehicles with a permitted gross weight of between 7.5 and 12 tons will be differentiated according to environmental standards. It is also proposed to increase the annual tax rate for tractors, mopeds etc. and to increase the annual tax for lorries with a permitted total weight not exceeding 7 500 kg to the same level as for passenger cars. The Government aims to strengthen the environmental characteristics of the taxation of motor vehicles in the 2007-budget.

Beverage taxes etc. - The Government proposes to reintroduce the base tax on disposable beverage packaging for plastic bottles abolished in The National Revised Budget 2005, as well as reversing the former government’s proposal of abolishing the rest of the tax as of 1 January 2006. The former government’s proposals of abolishing the tax on chocolate and sweets and changing in the tax on non-alcoholic beverages are also reversed. On the other hand, the Government maintains the former government’s proposal of expanding the base to which the environmental tax on beverage packaging applies.

Table 1 Direct tax rates and thresholds etc. for 2005 and proposals for 2006

	2005-rules	Proposal 2006	Percentage change
Employee’s National Insurance contribution
Wage income	7.8 percent	7.8 percent	–
Income from self-employment within agriculture, forestry and fisheries	7.8 percent	7.8 percent	–
Other income from self-employment	10.7 percent	10.7 percent	–
Pension income, etc.	3.0 percent	3.0 percent	–
Lower threshold for the payment of employee’s National Insurance contribution	NOK 29 600	NOK 29 600	-
Supplementary rate	25.0 percent	25.0 percent	–

Surtax (1)
Bracket 1
Rate	12.0 percent	9.0 percent	-3
Lower threshold, class 1	NOK 381 000	NOK 394 000	3.4
Lower threshold, class 2	NOK 393 700	To be abolished
Bracket 2
Rate	15.5 percent	12.0 percent	-3.5
Lower threshold, class 1	NOK 800 000	NOK 750 000	–

Tax on ordinary income
Individuals	28.0 percent	28.0 percent	–
Individuals in Finnmark and Northern Troms	24.5 percent	24.5 percent	–
Taxpayers which pay in arrears (businesses)	28.0 percent	28.0 percent	–

Personal allowance
Class 1	NOK 34 200	NOK 35 400	3.5
Class 2	NOK 68 400	NOK 70 800	3.5

Basic allowance applicable to wage income
Rate	31.0 percent	34.0 percent	3
Upper threshold (2)	NOK 57 400	NOK 61 100	6.4
Lower threshold	NOK 4 000	NOK 4 000	–

Basic allowance applicable to pension income
Rate	24.0 percent	24.0 percent	–
Upper threshold (2)	NOK 49 400	NOK 51 100	3.4
Lower threshold	NOK 4 000	NOK 4 000	–

Special wage income allowance (3)	NOK 31 800	NOK 31 800	–

Special allowance relating to old age and disability etc.	NOK 19 368	NOK 19 368	–

The tax limitation rule for retired persons etc.
Upper rate	55.0 percent	55.0 percent.	–
Tax-free net income
Single	NOK 92 100	NOK 95 300	3.5
Married couple	NOK 151 000	NOK 156 300	3.5
Net wealth surcharge
Rate	2.0 percent	2.0 percent	–
Limit	NOK 200 000	NOK 200 000	–

Special allowance applicable to tax payers in Finnmark and Northern Troms
Class 1	NOK 15 000	NOK 15 000	–
Class 2	NOK 30 000	NOK 30 000	–

Fishermen’s and seamen’s allowance
Rate	30.0 percent	30.0 percent	–
Upper treshold	NOK 80 000	NOK 80 000	–

Special allowance applicable to income from self-employment within agriculture etc.
Income-independent allowance	NOK 36 000	NOK 36 000	–
Allowance rate above income-independent allowance	19.0 percent.	19.0 percent	–
Maximum overall allowance	NOK 61 500	NOK 71 500	16.3

Maximum allowance for premium paid to individual pension savings schemes (IPA	NOK 40 000	NOK 40 000	–

Maximum allowance for labour union fees etc.	NOK 1 800	NOK 2 250	25

Allowance for travel between home and workplace
Rate per km	NOK 1.40	NOK 1.40	–
Lower allowance threshold	NOK 12 800	NOK 12 800	–

Maximum allowance for gifts to voluntary organisations etc	NOK 12 000	NOK 12 000	-

Special allowance for high expenses related to sickness
Lower threshold	NOK 9 180	NOK 9 180	–
Upper threshold	unlimited	unlimited	–

Parent allowance for documented costs associated with childcare
Upper threshold
One child	NOK 25 000	NOK 25 000	–
Additional amount for each subsequent child	NOK 5 000	NOK 5 000	–

Tax credits for home savings for people under the age of 34 years (BSU)
Rate of tax credit	20 percent	20 percent	–
Maximum annual saving amount	NOK 15 000	NOK 15 000
Maximum savings amount under the scheme	NOK 100 000	NOK 100 000

Employer’s National Insurance contribution (4)
Zones 1 and 2	14.1 percent	14.1 percent	–
Zone 3	10.2 percent	12.1 percent	1.9
Zone 4	9.5 percent	11.7 percent	2.2
Zone 5	0 percent	0 percent
Supplementary employer’s National Insurance contribution on income in excess of 16 times the basic amount (G) the National Insurance system	12.5 percent	0 percent	-12.5

The wealth tax		2005 rules		Proposal 2006 (5)		Percentage change
		Limits NOK	Rate	Limits NOK	Rate	Percentage change
Local government
	0 – 151 000		0.0 percent	0 – 200 000	0.0 percent	32.5
	151 000 –		0.7 percent	200 000 –	0.7 percent	32.5
Central government
Class 1	0 – 151 000		0.0 percent	0 – 200 000	0.0 percent	32.5
	151 000 - 540 000		0.2 percent	200 000 – 540 000	0.2 percent	32.5
	540 000 –		0.4 percent	540 000 -
Class 2	0 – 181 000		0.0 percent	To be abolished		–
	181 000 – 580 000		0.2 percent			–
	580 000 –		0.4 percent			–

1 The rate for Northern Troms and Finnmark is 9.5 percent in bracket 1 for 2005. It is proposed that the rate in bracket 1 be reduced to 7 percent in 2006. Bracket 2 applies to Northern Troms and Finnmark as well.
2 The sum of the basic allowance applicable to wage and pension income shall not exceed the upper threshold applicable to the basic allowance for wage income, i.e. NOK 61,100 in 2006.
3 Taxpayer with wage income benefits from the higher of the sum of the basic allowance applicable to wage and pension income and the special allowance applicable to labour income.
4 Anyone who is 62 years or older is subject to a reduced rate of 4 percentage points. Zones 2–4 shall continue to pay employer’s National Insurance contributions at the rates which applied in 2003 (10.6, 6.4 and 5.1 percent, respectively) until the difference between what the firm actually paid by way of employer’s National Insurance contribution (pursuant to the 2003 rules) and what the firm would have paid by way of employer’s National Insurance contribution at a rate of 14.1 percent equals the lower contribution threshold. The lower contribution threshold for 2006 is NOK 270,000 per firm.
5 It is proposed for 2006 that married couples be granted a double basic allowance (class 2 to be abolished).
Source: Ministry of Finance.

Table 2 Indirect tax rates for 2005 and proposed rates for 2006

Category of indirect tax	Current rate	Proposal 2006	Percentage change
VAT, percent of sales value (1)
Ordinary rate	25	25	0
Reduced rate	11	13	2
Low rate	7	8	1

Alcoholic beverages
Spirit-based beverages in excess of 0.7 percent alcohol by volume
NOK/percent alcohol and litre	5,54	5,64	1,8
Other alcoholic beverages from 4.7 to 22 percent alcohol by volume
NOK/percent alcohol and litre	3,61	3,67	1,7

Other alcoholic beverages up to 4.7 percent alcohol by volume, NOK/litre
a) 0.0-0.7 percent alcohol by volume	1,58	1,61	1,9
b) 0.7-2.7 percent alcohol by volume	2,47	2,51	1,6
c) 2.7-3.7 percent alcohol by volume	9,35	9,51	1,7
d) 3.7-4.7 percent alcohol by volume	16,18	16,46	1,7

Tobacco
Cigars, NOK/100 grams	181	184	1,7
Cigarettes, NOK/100 units	181	184	1,7
Smoking tobacco, NOK/100 grams	181	184	1,7
Snuff, NOK/100 grams	58	59	1,7
Chewing tobacco, NOK/100 grams	58	59	1,7
Cigarette paper, NOK/100 units	2,76	2,81	1,8

Motor vehicle registration tax
Vehicle category a (2)
Weight tax, NOK/kg
Initial 1150 kg	34,75	35,36	1,8
Next 250 kg	69,50	70,72	1,8
Next 100 kg	139,00	141,43	1,7
Remainder	161,66	164,49	1,8
Piston displacement tax, NOK/cm3
Initial 1200 cm3	10,26	10,44	1,8
Next 600 cm3	26,86	27,33	1,7
Next 400 cm3	63,18	64,29	1,8
Remainder	78,93	80,31	1,7
Motor effect tax, NOK/kW
Initial 65 kW	134,22	136,57	1,8
Next 25 kW	489,54	498,11	1,8
Next 40 kW	979,38	996,52	1,8
Remainder	1 657,36	1 686,36	1,7
Vehicles, category b, (3) percent of category a	20	20	0,0
Vehicles, category c, (4) percent of category a	13	13	0,0
Vehicles, category d, (5) percent of category a	55	55	0,0
Vehicles, category e, (6) percent of value	36	36	0,0
Vehicles, category f, (7) unit tax	9 228	9 389	1,7
Piston displacement tax, NOK/cm3
Initial 125 cm3	0	0	0,0
Next 775 cm3	31,70	32,25	1,7
Remainder	69,50	70,72	1,8
Motor effect tax, NOK/kW
Initial 11 kW	0	0	0,0
Remainder	410,65	417,84	1,8
Vehicles, category g (8)
Weight tax, NOK/kg
Initial 100 kg	13,01	13,24	1,8
Next 100 kg	26,01	26,47	1,8
Remainder	52,01	52,92	1,7
Piston displacement tax, NOK/cm3
Initial 200 cm3	2,72	2,77	1,8
Next 200 cm3	5,42	5,51	1,7
Remainder	10,83	11,02	1,8
Motor effect tax, NOK/kW
Initial 20 kW	34,68	35,29	1,8
Next 20 kW	69,34	70,55	1,7
Remainder	138,69	141,12	1,8
Vehicles, category h, (9) percent of category a	40	40	0,0
Vehicles, category i, (10) NOK	3 038	3 091	1,7
Vehicles category j, (11) percent of category a	35	35	0,0

Annual tax on motor vehicles, NOK/year
Ordinary rate	2 815	2 865	1,8
Motorcycles	1 585	1 615	1,9
Caravans	940	955	1,6
Vehicles with a total weight exceeding 3.5 tons (12)	1 785	-	160,5
Tractors, mopeds, etc.(13)	360/180	365	1,4/102,7

Annual weight-based tax, NOK/year	varies	varies	1,8

Re-registration tax	varies	varies	1,8

Petrol, NOK/litre
Sulphur-free (14)	4,03	4,10	1,7
Low-sulphur (15)	4,07	4,14	1,7

Auto diesel, NOK/litre
Sulphur-free (16)	2,92	2,97	1,7
Low-sulphur (17)	2,97	3,02	1,7

Marine engines, NOK/HP	135,00	137,50	1,9

Electricity consumption, øre/kWh
General rate	9,88	10,05	1,7
Reduced rate	0,45	0,45	0,0
Lubricating oil, NOK/litre	1,62	1,65	1,9

Tax on mineral products
Base-tax on heating oil, NOK/litre	0,414	0,421	1,7
CO2-tax, ordinary rate
Petroleum activities, NOK/litre or Sm3	0,78	0,79	1,3
Mineral oil, NOK/litre	0,52	0,53	1,9
Petrol, NOK/litre	0,78	0,79	1,3
CO2-tax, reduced rate (18)
Mineral oil, NOK/litre	0,31	-	71,0
Petrol, NOK/litre	0,28	-	182,1
Sulphur tax, ordinary rate, NOK/litre	0,07	0,07	0,0
Sulphur tax, reduced rate, NOK/litre (19)	0,03	-	133,3

Waste tax
Landfills for waste disposal, NOK/ton
Landfills – high environmental standard	409	416	1,7
Landfills – low environmental standard	533	542	1,7
Incineration plants, NOK/emission unit	varies	varies	1,8
CO2-tax on incinerated waste, NOK/ton	40,57	41,28	1,8

Tax on health- and environmentally damaging chemicals
Trichloreten, NOK/kg	55,71	56,67	1,7
Tetrachloreten, NOK/kg	55,71	56,67	1,7

Tax on greenhouse gases HFC and PFC
NOK/ton CO2-equivalents	187,27	190,55	1,8

Chocolate and sweets, NOK/kg	15,79	16,07	1,8

Non-alcoholic beverages
Finished product, NOK/litre	1,58	1,61	1,9
Concentrate (syrup), NOK/litre	9,64	9,81	1,8
Carbonate, NOK/kg	64,00	65,12	1,8

Tax on beverage packaging, NOK/unit
Environmental tax
a) Glass and metals	4,46	4,54	1,8
b) Plastics	2,69	2,74	1,9
c) Carton	1,11	1,13	1,8
Base-tax on disposable beverage packaging.	0,91	0,93	2,2

Sugar, NOK/kg	6,12	6,23	1,8

Stamp duty, percent of sales value	2,5	2,5	0,0

1 Change in Value Added Tax is stated in percentage points.
2 Group a: Passenger cars, delivery vans class 1 and buses less than 6 meters in length, with up to 17 seats.
3 Group b: Delivery vans class 2. Lorries with a permitted total weight not exceeding 7 500 kg.
4 Group c: Campervans.
5 Group d: Dual-purpose cars with total weight not exceeding 7500 kg.
6 Group e: Weasels.
7 Group f: Motorcycles.
8 Group g: Snowmobiles (snow scooters).
9 Group h: Taxi and transportation of disabled people.
10 Group i: Vintage cars.
11 Group j: Buses less than 6 meters in length, with up to 17 seats, of which at least 10 are forward-facing.
12 Motor vehicles with a total weight exceeding 3.5 tons will pay the ordinary rate.
13 Reduced rate to be abolished. Tax to be payable at the ordinary rate
14 Petrol with a sulphur content of 10 ppm or less.
15 Petrol with a sulphur content between 10 ppm an 50 ppm.
16 Auto diesel with a sulphur content of 10 ppm or less.
17 Auto diesel with a sulphur content between 10 ppm an 50 ppm.
18 Reduced rate to be abolished. Tax to be payable at the ordinary rate.
19 Reduced rate to be abolished. Tax to be payable at the ordinary rate.
Source: Ministry of Finance.