The challenges of the salmon tax report outline that the Norwegian government's proposal "will hit harder and wider than what was intended". Furthermore, it assures "we are facing one of the biggest and most far-reaching changes in business taxation in Norway in modern times". Junior Consulting and NHHS Consulting published the report on an independent basis of the students' own consulting companies
The farming industry will become one of the very few industries that are taxed at standard price instead of the achieved one. The consequences are higher volatility and more uncertain markets. As the proposal will primarily affect business clusters regionally and locally in Norway, it will be of particular interest to shed light on the consequences of such a tax for the coastal regions.
Firstly, the government has indicated that the tax will result in annual revenue of approximately NOK 3.8 billion. Closer calculations show that probable proceeds will be around NOK 10 billion annually. The tax pressure on the industry will be far higher than outlined, according to NHHS Consulting.
Against this background, 8 large regional business associations and 4 business alliances which include several smaller associations, as well as 8 regional savings banks from Rogaland to Troms/Finnmark engaged a group of students at NTNU and NHH to carry out this survey.
The challenges of the salmon tax analyze potential consequences for investments, value creation, and jobs. This is with particular emphasis on the rural areas and the regions that our associations and banks represent.
Restaurants, groceries, and several other players are dependent on predictable and fixed purchase prices. Without long-term contracts, prices will fluctuate with season and demand and thus fluctuate disproportionately for the end consumer. Only adjusted for seasonal variations will the purchase price be twice as high between winter and summer.
If the salmon price increases, it can mean that a breeder is left with an increased tax bill. While the agreed price above the customer is fixed. The security provided by the contracts falls away and the uncertainty increases.
The report explains that if around 2,000 tonnes of salmon of the salmon that is sold achieve a price of NOK 50/kg instead of the standard price of NOK 80/kg (as a result of a bad year) it results in an "additional tax" of NOK 24 m.
At 10,000 tonnes, the additional tax is NOK 120 m. The increased risk of very high taxes in combination with the other challenges constitutes a significant risk for the breeders.
Consequently, standard price removes the possibility of predictable long-term contracts, and companies dependent on these look abroad for alternatives.
Projects worth approximately NOK 35 billion have been stopped or put on hold. This means that 600 jobs are now in limbo.
The abandonment of projects has major repercussions for suppliers and third parties. Concretely, these means that fewer environmental and biology projects are implemented. Less research and development, and lower value creation along the coast.
In addition, suspension or postponement of investments and industrial projects means that Norway is exposed to increased competition risk if the uncertainty drags on in time.
"Our biggest fear is that investments in innovation and development will be reduced/downgraded. These are investments with high risk. Also, the upside for investors through the new tax burden will be low," Tore Ramstad, Business advisor at SpareBank 1 SMN, said.
Confiscation of a significant part of the cash flows in the companies will also result in a reduction in both mortgage values and equity. This could subsequently lead to increases in capital costs.
NHHS Consulting is an independent consulting company run by top students at the Norwegian School of Economics (NHH) in Bergen. There are 35 talented students with expertise in analysis, financial management, marketing, and strategy. Several of them have relevant experience from internships in leading companies within finance, IT, and consulting.
It drives value creation for external organizations in the form of tailor-made projects, staffing of consultants, and training courses. Aimed at SMBs and Startups. Also, it is a subcontractor of projects led by the consulting industry's top firms.
NHHS Consulting has had EY and QVARTZ as partners for the past decade. In 2019, it secured a new partnership with VIS. Finally, in 2020 it entered a partnership with Business Finland.