Fish farm in Norway. According to the NHHS Consulting report commissioned by Sjømat Norge, uncertainty remains more than a year after the salmon tax came into force in Norway.
Photo: Adobe Stock.
More than a year has passed since the ground rent tax on the salmon industry - known as the 'salmon tax' - came into force in Norway, but uncertainty remains. So says a report recently presented by NHHS Consulting unraveling what the time has been like for the industry since the initial proposal was presented in October 2022.
The report, which was commissioned by Sjømat Norge - the National Association for the Norwegian Fishing and Aquaculture Industry- is quite clear about the outcome right from its title: "Salmon Tax - One Year of Missed Opportunities."
"Can we begin to see the outlines of emerging predictability, or does the confusion and uncertainty that prevailed in September 2022 still reign supreme?" The question posed by the authors at the beginning of the report is answered by Peder Weidemann Egseth, tax, duty, and business policy expert at Sjømat Norge, in the association’s release following its presentation.
"The NHHS report shows that unfortunately, the situation is quite unchanged one year after the salmon tax was introduced, and the frustration surrounding the tax remains significant. Both the model and the process have created considerable uncertainty and unpredictability," says Weidemann Egseth.
"Even though the tax rate and model have been approved by the Parliament, central elements such as the norm price council have not yet been put to work. This means that the industry still doesn't know what income they should be taxed on from July 1 this year," he adds. This salmon norm price council was scheduled to be appointed at Christmas on the model of the existing Norwegian Petroleum Price Council, ignoring the position of Sjømat Norge, which from the beginning told the Government that "selling salmon is significantly different from selling oil."
The predefined prices set by that council are expected to come into effect from July 2024. In the meantime, the companies will continue to be responsible for calculating their taxable income according to the rules of the ground rent tax, which has already caused problems for Norway's five largest salmon producers. Last fall, Mowi, Salmar, Grieg Seafood, Lerøy Seafood Group, and Austevoll Seafood received a letter from the Norwegian finance authority warning them that uncertainty was no excuse for submitting incomplete financial reports.
"The NHHS report shows that unfortunately, the situation is quite unchanged one year after the salmon tax was introduced"
Peder Weidemann Egseth, tax, duty, and business policy expert at Sjømat Norge.
On September 28, 2022, the Norwegian Government submitted a proposal for the introduction of a ground rent tax on aquaculture that included an effective tax rate of 40%. It intended to implement it as of January 1, 2023, before the deadline for public consultation expired and several months before Parliament considered the matter.
The effects of this announcement soon became apparent. More than NOK 50,000 million (EUR 4,408 million - USD 4,766 million) in market value disappeared from the Oslo Stock Exchange, planned investments worth NOK 40,000 million (EUR 3,527 million - USD 3,813 million) were reduced, canceled, or postponed, several companies sent redundancy notices to some of their employees, and the contract market for salmon plummeted as a result of the government's proposed regulatory price, based on NASDAQ prices.
In addition, revenues from the auction of permits for salmon, trout, and rainbow trout farming decreased by approximately NOK 4,500 million (EUR 396 million - USD 428 million), and several permits for the farming of these species remained unsold. "Growth bought at a fixed price was returned as it was no longer profitable," NHHS Consulting report summarizes.
"When the proposal was finally submitted to the Parliament on March 28, 2023, it was evident that the government had overlooked the large majority of critical feedback during the consultation period, which was critical of parts or all of the proposal. The only significant change was a reduction in the effective tax rate from 40% to 35%," it continues. Finally, the ground rent tax was approved in the Storting by a narrow majority on May 31, 2023. Several changes were introduced compared to the Government's original proposal, including the final effective tax rate, which ended up being 25%.
The salmon tax has not only affected producers but also the supply industry. Up to 74% of subcontractors have seen their projects paralyzed since it was proposed.
Photo: Øyvind A. Haram / Sjømat Norge.
"The introduction of the tax has resulted in significant upheavals." This is how Sjømat Norge defines the situation following the NHHS Consulting report, and the truth is that its main conclusions show the situation has not yet normalized. However, some of the predictions made in autumn 2022 have been less severe than expected, such as the number of jobs lost, or profitability, which has been helped by the weakening of the Norwegian krone in recent times.
Where the worst-case scenario was certainly not wrong was concerning large investments, which are still on hold. According to the report, after the salmon tax proposal was submitted, investments worth NOK 30,800 million (EUR 2,715 million - USD 2,935 million) were put on hold and have not yet been resumed. Many of these, says Sjømat Norge, were projects that would have strengthened the social contract, and created new activities and more profitable jobs on the coast. Only a quarter of the initially suspended investments have been resumed and the association explains this by "the need for some necessary operational updates."
The report also puts the spotlight on subcontractors that operate around salmon producers and have also been severely affected. According to NHHS Consulting, small and medium-sized subcontractors in the aquaculture industry report lost projects worth NOK 4,810 million (EUR 424 million - USD 458 million). However, as mentioned, within the industry itself, the report acknowledges that, following changes to the original government proposal, there have been fewer redundancies than originally anticipated.
Another positive point in the 16 months since the salmon tax announcement, is that industry profitability was good in 2023, largely due to a weaker currency and a high salmon price. However, the report also recalls that production volume has declined and, combined with lower liquidity and a lower growth outlook, this may create challenges for the industry going forward.
"The tax and the associated process have increased the risk of investing in Norway for businesses"
Axel Fagerbakke, project manager at NHHS Consulting and director of the report.
As said above, more than a year after it enters into force, the tax continues to generate uncertainty when calculating tax expenditures. "Companies do not know how much they have to pay in taxes, and there is uncertainty associated with the bureaucracy that comes with norm price councils," the report says.
"Our research indicates that the tax and the associated process have increased the risk of investing in Norway for businesses," says Axel Fagerbakke, project manager at NHHS Consulting and director of this report, which also involved consultants Rav Seime, Anniken Baklund, and Anna Holmås (all three analyses), and Mathias Weisæth (graphic design).
Likewise, Fagerbakke also highlights that access to capital has been negatively affected for the majority. "Banks demand increased security and equity, and in combination with owners' tax burden and uncertainty, this has resulted in less available capital," he adds.
As the report claims, uncertainty makes the industry less risk-taking, which is why aquaculture companies want a new tax model. "Industry players demand a better tax model, without norm price councils and increased predictability for investments," it states. Stakeholders are willing to pay a little more in taxes, but up to 88% of the companies want another form of taxation.
Tor Anders Elvegård, Director of Nordlaks Aquaculture and leader of Sjømat Norge, has written an article in the Norwegian media E24 calling on the Norwegian Government to remove the current model of ground rent tax on the salmon industry.
Photo: Sjømat Norge.
Coinciding with the presentation of the NHHS Consulting report commissioned by Sjømat Norge - available here - the Director of Nordlaks Aquaculture and leader of the association, Tor Anders Elvegård, has signed an article in the Norwegian financial media E24. Under the title 'The uncomfortable truth about the salmon tax' he calls on the Norwegian Government to remove the current model of ground rent tax on the salmon industry and work towards an all-party-supported tax deal for aquaculture in Parliament.
In his opinion, although the coalition government parties - Center Party and Labor Party - claim the tax is taking hold and they are proud of its implementation, "the report from NHHS reveals a truth that must be uncomfortable for Vedum and Støre" [alluding to Trygve Slagsvold Vedum, Minister of Finance, and Jonas Gahr Støre, Prime Minister]. In his text, Elvegård refers to the tax put in place by the Norwegian Government as an "appropriation of investment capital from Coastal Norway."
"The seafood industry has become the engine along the coast over the past decade, and the job opportunities in companies that invest have transformed depopulated municipalities into immigration municipalities," he writes. As he sees it, instead of continuing to invest in the sector and facilitate growth through stable and predictable framework conditions, the Government chose to slow down development by introducing a non-neutral basic income tax "contrary to the Norwegian model and proud tradition of how new taxes are introduced in Norway."
"Therefore, the industry is crystal clear in our recommendation to Norwegian politicians: Remove today's basic rent taxation model on aquaculture, and work for a cross-party, broadly anchored aquaculture tax settlement in the Parliament that provides predictable framework conditions, reduced bureaucracy and conflict levels, and facilitates local ownership, more profitable jobs, growth, and value creation in coastal and rural Norway," Tor Anders Elvegård concludes his article.
*Source:
- 'Den ubehagelige sannheten om lakseskatten', E24 article by Tor Anders Elvegård.
