National Budget 2005

National Budget 2005

These pages contain information in English about Norway's National Budget for 2005, presented to the Storting as Report no. 1 (2004-2005) on 6 October 2004. The National Budget presents the Government's program for the implementation of economic policy and projections for the Norwegian Economy.

Royal Norwegian Ministry of Finance

Per-Kristian Foss
Minister of Finance
October 2004

Budget 2005 - key figures and rates of direct and indirect taxes

Direct and Indirect Taxes – Main Features of the 2005 Proposal

Fiscal Budget 2005 – A Good Basis for Continued Growth

Tax Exemption for Companies' Income from Shares

Direct and Indirect Taxes – Main Features of the 2005 Proposal

1 Tax Reform Follow-Up

In March of this year, the Government launched a proposal for a comprehensive overhaul of the tax system, “Om skattereform” (“On Tax Reform”). In the main, these changes are based on the recommendations of the Skauge Committee, as set out in the green paper, NOU 2003: 9. The Storting’s deliberation of the tax reform proposal, cf. Recommendation No. 232 (2003-2004) to the Storting, has paved the way for implementation of the reform in keeping with the main features outlined in the Government’s Report.

The overall objectives of the Government’s reform proposal are an improved and more just tax system and a reduction in the level of direct and indirect taxes. This will promote improved economic performance and the attainment of distributional goals. The reform proposal implies a tax system that is more robust in the face of increased internationalisation. Rules on the taxation of income from shares will comply with the EEA Agreement requirements respecting, among other things, freedom of establishment and the free flow of capital. Overall, the Government’s reform proposal implies important changes to the taxation of individuals, businesses and capital.

The reform proposal is based on the main principles of the 1992 tax reform. One of the main principles underpinning the 1992 reform was the definition of clear objectives for each element of the system of direct and indirect taxes. The progressive taxation of individuals would promote distributional goals. The taxation of business and capital attached much weight to improved resource allocation, by way of more unified taxation of business and capital income and lower tax rates. Environmental taxes would contribute to improved resource allocation by way of more correct pricing of environmental goods.

Uniform treatment, symmetry, continuity, low tax rates and broad tax bases were key features of the 1992 tax reform. The Skauge Committee refers to the tax reform having contributed to a better correlation between pre- and post-tax profits, more efficient resource allocation, increased returns on capital, improved capital mobility, and probably increased savings. Despite the favourable outcome of the 1992 tax reform, it is now necessary to amend the tax system for, inter alia, the following reasons:

  • The split model no longer works as intended, both because the rate differential between taxes on labour and capital has increased significantly since 1992, from 28.1 percentage points to 36.7 percentage points, and because it has become simpler to get true labour income taxed as capital income. Consequently, it has become very profitable and widespread to get true labour income accrued in a proprietary business taxed as capital income. For a tax system to gain general acceptance, labour income must be taxed equally, irrespective of whether it is earned by an employee, an active owner through his or her own company, or a self-employed person.
  • The EEA Agreement imposes restrictions on the tax system. The main rule as far as capital taxation is concerned, is that one shall not discriminate against owners or shares from EEA countries. Dividends and capital gains from foreign shares are at present taxed more heavily than dividends and capital gains from the shares of Norwegian companies. One of the reasons for this is that the imputation system (which ensures that dividends are subject to the same level of taxation as other capital income) only applies to Norwegian shares and Norwegian taxpayers. Moreover, the RISK regulations (introduced to prevent taxed income retained in the company from also being taxed as a capital gain on the part of the shareholder upon realisation) do not apply to foreign shares.
  • Norway is facing important economic policy challenges as the result of mounting future pension expenditure and age-related expenditure. The financing of pensions and care appropriations for the elderly will consume a steadily increasing share of total income in coming years. Consequently, there is a more acute need for a policy that reinforces the scope for growth in the economy. The main priorities include utilisation of manpower resources and strengthening of weak groups’ involvement with economic life. Tax reform, pensions reform, as well as public sector resource utilisation, must be coordinated with each other. The tax system must to a larger extent contribute to making work profitable.
  • There is still a need for simplifying and streamlining the tax system. The taxation of individuals, in particular, is characterised by a higher number of allowance schemes and special provisions that are not always well founded. This narrows the tax base, makes it more difficult to keep tax rates low, and increases the complexity and costs associated with the tax system. Moreover, a complex tax system may also favour those who command sufficient resources to master the tax regulations. Those will not always be the most needy taxpayers. Besides, a broad tax base is important to ensure that the progressive rate structure has the intended distribution effect. Only individuals with taxable income can benefit from the allowance schemes of the tax system, and the tendency is for high-income groups to have the largest allowances.
  • The 1992 tax reform did not cover wealth taxation. The current wealth tax results in a highly unequal tax burden, depending on what assets the wealth comprises. This affects savings decisions, and has unreasonable implications in individual cases. Society’s overall return on savings is reduced.

The main features of the tax reform proposal, hereunder the 2005 proposal on direct and indirect taxes, can be summarised as follows:

  • Abolition of the split model, concurrently with the introduction, from 2006, of a tax on high returns on capital on the part of owners (the shareholder model for personal shareholders and a source-based model for the self-employed). Under the shareholder model, returns on capital corresponding to a risk-free rate of interest will be exempt from tax upon extraction. Returns on capital (dividends and capital gains) in excess thereof will be taxed on the part of the shareholder at the rate of 28 percent. Taking into consideration the tax paid by the enterprise on its profits, the marginal rate of taxation on dividends becomes 48.16 percent. That will also be the tax rate on true labour income extracted in the form of dividends.
  • Abolition of the split model requires the introduction of the shareholder model to be combined with significant reductions in the highest marginal tax rates on labour income. It is proposed that the rates of surtax be reduced by up to 4 percentage points for 2005. The tax reform implies an additional reduction in the marginal rate of taxation on high labour income for 2006.
  • Reduced marginal tax rates on labour income are also of decisive importance from the point of view of stimulating increased and prolonged employment. The Government proposes a reduction in the marginal tax rate on wages, also in respect of groups who do not pay any surtax. A basic allowance only applicable to labour income will therefore be extended for 2005. In total, some 1.1 million taxpayers will see a drop in their marginal rate of labour taxation.
  • A tax exemption on dividends and capital gains between companies (the exemption method) is introduced from 2004. The tax exemption will prevent chain taxation between companies. The exemption method for companies, combined with the shareholder model for personal shareholders, will remove existing uncertainty respecting the compliance of the Norwegian taxation of income from shares with the EEA Agreement, inasmuch as the RISK and imputation regulations are abolished.
  • The increase in the tax on high returns on capital on the part of owners must be seen in the context of the scaling back of the wealth tax, with a view to its abolition. The wealth tax is to be halved during the course of 2006 and 2007, according to the reform proposal set out in the Tax Reform Report. Overall, capital taxation will be reduced. Certain abatements to the wealth tax are proposed already for 2005. The minimum wealth level triggering wealth tax will be increased, and a joint valuation rate of 65 percent is introduced for all shares, including listed shares and investment fund units.
  • The Government agrees with the Skauge Committee that it is necessary to undertake a review of the tax system’s allowance schemes, with a view to their simplification. The Government proposes that certain allowance schemes be streamlined in 2005, which effort will also contribute to financing the tax reform and rendering more equal treatment.

It is proposed a one percentage point increase of all Value Added Tax (VAT) rates, the general VAT rate from 24 percent to 25 percent, the rate on food from 12 percent to 13 percent and the low rate from 6 percent to 7 percent. The net tax reductions are thus combined with a certain shift in the tax burden from taxation of labour to taxation of consumption.

In the main, the changes to direct and indirect taxes as proposed by the Government will uphold the progressive structure of the tax system. Besides, the proposal will pave the way for more equal tax treatment of true labour income, and thereby a more just tax system.

2 Direct and Indirect Taxes – A Brief Summary of the 2005 Proposal

The Government’s 2005 proposal on direct and indirect taxes implies overall net tax reductions for 2005 of NOK 1.65 billion cash. New net direct and indirect tax reductions amount to about NOK 3.3 billion accrued and about NOK 2.8 billion cash for 2005. Appropriations made in 2004 with full budgetary effect only from 2005 onwards imply an increase in the tax level of about NOK 1.15 billion cash.

The reduction in the surtax and the increase in the basic allowance imply a gross tax reduction of some NOK 7.7 billion accrued and just under NOK 6.2 billion cash. The proposed VAT changes are estimated to increase revenue by almost 6.1 billion NOK accrued and almost NOK 5.2 billion cash. Simplification of allowance schemes, etc., entail an increase of just over NOK 1.1 billion accrued and about NOK 0.8 billion cash. Other changes, hereunder the abolition of tax on imputed income from housing, imply overall net reductions of about NOK 2.8 billion accrued and about NOK 2.6 billion cash.

2.1 Tax Reform Follow-Up

Changes to the taxation of individuals and businesses

One of the main objectives of the tax reform is more equal treatment of true labour income and increased participation in economic life. The Government proposes that Central Government surtax rates be reduced by 2.5 percentage points for bracket 1 and by 4 percentage points for bracket 2 in 2005. The overall surtax reduction is estimated at about NOK 4.1 billion accrued for 2005. The maximum marginal tax rate on wages is reduced to 61.5 percent including employer’s Social Security contributions, and 51.3 percent excluding employer’s Social Security contributions. The maximum marginal tax rate on wages (including employer’s Social Security contributions) was 56.1 percent in 1992. The Skauge Committee recommended that the marginal rate of taxation be scaled back to 54.3 percent (including employer’s Social Security contributions). In order to get down to the surtax rate levels outlined by the Tax Reform Report, the surtax would have to be reduced by 4 and 3.5 percentage points, respectively, for 2006.

It is proposed that the basic allowance for wage income is extended by increasing the rate from 24 percent to 27 percent, and increasing the upper limit from NOK 47,500 to NOK 56,000. The special lower wage allowance remains unchanged at NOK 31,800. The upper limit of the basic allowance applicable to pension income remains unchanged in real terms. Increased basic allowance is estimated to result in a tax reduction of about NOK 3.6 billion accrued for 2005. In overall terms, this means that one has for 2005 placed a considerable emphasis on letting taxpayers on medium and low wage incomes also benefit from reduced tax.

The Government proposes some changes to employee’s Social Security contributions. The lower limit for employee’s Social Security contributions is increased from NOK 23,000 to NOK 29,600, implying that the so-called tax-exemption card limit becomes NOK 30,000. The proposal is estimated to reduce revenue by about NOK 65 million accrued for 2005. Moreover, it is proposed that Social Security contributions for the self-employed (outside the primary industries) be 10.7 percent irrespective of income, i.e. that the lower 7.8 percent rate on income in excess of 12 times the base rate of the Social Security system be abolished. This retrenchment will be more than outweighed by the reduction in the rates of surtax. The proposal is estimated to increase revenue by NOK 145 million accrued for 2005.

The Government proposes a tax exemption for dividends and capital gains between companies (the exemption method), to be applied to dividends earned from the 2004 tax year onwards, and for capital gains or losses on shares disposed of from 26 March 2004 onwards. The proposal is estimated to reduce revenue by about NOK 500 million cash for 2005.

The Ministry has, based on the comments included in the majority opinion of Recommendation No. 232 (2003-2004) to the Storting, cf. Report No. 29 (2003-2004) to the Storting, “Om skattereform” (“On Tax Reform”), appointed a committee to examine, inter alia, the scope for extraction-based taxation of the self-employed in addition to the regular taxation of the profits of owners. The committee will submit its report by 15 December 2004.

Wealth tax reduction

The wealth tax is to be halved during the course of 2006 and 2007, according to the reform proposal set out in the Tax Reform Report. However, certain changes are proposed already for 2005. A joint discount factor is introduced in the valuation of all shares and investment fund units. All listed shares and investment fund units are to be valued at 65 percent of the share price and unit price, respectively, as per 1 January of the tax year in question. Moreover, it is proposed that the minimum wealth level triggering wealth tax be increased. It is estimated, on an uncertain basis, that the proposals will reduce revenue by about NOK 555 million accrued for 2005.

Increased VAT rates

The Government proposes a one percentage point increase of all VAT-rates, the general VAT rate from 24 percent to 25 percent, the rate on food from 12 percent to 13 percent and the low rate from 6 percent to 7 percent. This implies a certain shift in the tax burden from taxation of labour to taxation of consumption, and will increase revenue by almost NOK 6.1 billion accrued.

Simplification and streamlining

An efficient tax system is characterised by a high degree of concurrence between actual income and taxable income. This implies that all income, hereunder benefits in kind, should form part of the tax base, with expenses that were required to earn such income being deductible. Broad tax bases make it possible to maintain low tax rates, which will reduce taxation costs. This suggests, inter alia, that it would not be appropriate to allow deductions that apply to a large share of taxpayers. Besides, tax bases that reflect actual economic circumstances are important to ensure that individuals with equal income are subject to equal tax treatment, and that tax rate progressiveness results in the intended redistribution of income.

For purposes of simplifying the tax system and contributing to the financing of the tax reform, the Government proposes certain retrenchments for 2005, which will in total amount to just over NOK 1.1 billion accrued. The simplification includes, inter alia, retrenchment of the daily commuting allowance, abolition of the per diem allowance and the tax exemption for per diem compensation for commuters, abolition of the dependency allowance, as well as abolition of the tax exemption for free diet for employees on the continental shelf and for seamen’s wage supplements, etc.

2.2 Other Tax Changes

The Government also proposes other tax changes, hereunder as follow-up on the Sem Declaration:

  • Abolition of the tax on imputed income from owner occupied dwellings and holiday homes. The proposal is estimated to result in a tax reduction of just under NOK 1.9 billion accrued for 2005.
  • Increase in the allowance applicable to gifts to charitable organisations from NOK 6,000 to NOK 12,000. Moreover, the Government proposes, as announced in Report No. 2 (2003-2004) to the Storting, “Revidert nasjonalbudsjett 2004” (“Revised National Budget 2004”), that the scheme be extended to include religious societies and non-religious ethical organisations without a national scope or association with a centralised organisation of national scope. The proposals are estimated, on an uncertain basis, to reduce tax revenues by NOK 100 million accrued for 2005.
  • Increase in the parent allowance. The limit for deducting documented expenses for the care of children under the age of 12 years is increased by up to NOK 5,000 for each additional child beyond the second child. The proposal is expected to reduce revenue by about NOK 15 million accrued for 2005.
  • Modify company car taxation to an age-based percentage taxation model from 2005 onwards. Income shall be calculated as 30 percent of the car’s list price as new below NOK 235,000, and 20 percent of any excess value. Such a rate-structure will correspond more or less to the average cost of keeping the car. The changeover will contribute to simpler and more robust regulations, because, inter alia, one will no longer need to determine the number of kilometres driven between the home and the workplace. The proposal is estimated to reduce revenue by about NOK 160 million accrued for 2005.
  • Abatements to the special tax system for shipowners, resulting in an overall loss of revenue of NOK 110 million accrued for 2005.
  • Transitional arrangement for the regionally differentiated employer’s Social Security contributions implies that the contribution rate is increased by 1.9 percentage points in zone 3, to 10.2 percent, and by 2.2 percentage points in zone 4, to 9.5 percent, from 2004 to 2005.
  • Levying VAT on transportation infrastructure services relating to the railway network and the airports from 1 January 2005. This will be made more or less revenue neutral by reductions in the subsidies paid to the National Rail Administration and to Avinor’s regional airports.
  • Levying VAT on cinemas, at a rate of 7 percent. Film production subsidies will be reduced in line with the VAT gains for the film producers.
  • Offer a tax incentive to promote sulphur-free fuels. This entails a loss of revenue of about NOK 50 million accrued.
  • Abolish the exemption from annual weight-based vehicle tax for buses on licensed routes. This will increase revenue by about NOK 45 million accrued.
  • Expand the environmental differentiation of the annual weight-based vehicle tax for vehicles in excess of 20 tonnes to also include EU emission requirements to be introduced during the course of 2005 and 2008. The change is expected to increase revenue by about NOK 15 million accrued.
  • Emission-free hydrogen cars to be exempted from vehicle registration tax and annual vehicle tax.
  • Reduce the rates of certain customs duties on clothing, with an overall reduction in revenue of about NOK 50 million accrued.
  • Keep excise duties on beverages nominally unchanged. This will reduce revenue by about NOK 120 million accrued.
  • Allow duty-free sales upon arrival at Norwegian airports.

Reference is also made to the discussion in Proposition No. 1 (2004-2005) to the Odelsting, “Skatte- og avgiftsopplegget 2005 – Lovendringer” (“Direct and Indirect Taxes – Legislative Amendments Proposed for 2005”).

3 Changes in revenue from direct and indirect taxation

Table 1 shows the estimated effects on revenue of the Government’s proposed changes to direct and indirect taxes for 2005. The changes proposed in Table 1 have been calculated compared to a reference system. The reference system for direct taxes is, somewhat simplified, the current rules with all income thresholds etc., adjusted to 2005-levels, assuming wage growth of 4 percent. Such an adjustment of thresholds etc., results in a reference system that is unchanged in real terms when compared to last year’s tax system. A taxpayer with an annual wage increase corresponding to the estimated wage growth will then end up with the same average tax rate under the reference system for 2005 as in 2004. In the reference system for indirect taxes, all volume-based taxes have been adjusted by an estimated price increase from 2004 to 2005 of 2.2 percent.

Some of the 2004-appropriations will have full budgetary effect only from 2005 onwards. These amounts, as shown in the Table, to about NOK 0.8 billion accrued. This is primarily caused by the re-imposition of electricity tax on the business sector, effective from 1 July 2004.

Table 1 Estimated effects on revenue of the Government’s proposed changes in direct and indirect taxes for 2005 relative to the reference system. Negative figures represent a reduction in direct or indirect taxes. NOK million.

 

Accrued

Cash

1. Tax reform follow-up

-6 578

-5 839

Changes in taxation of persons and businesses

-7 720

-6 645

Increase the Basic allowance

-3 600

-2 880

Reduce the Central Government Income Tax (surtax)

-4 140

-3 310

Remove the reduced Social Security Contribution rate for business income above 12 G

145

145

Increase the lower income limit for Social Security Contributions

-65

-50

Increase the tax-free net income for married couples in the Tax shelter rules for pensioners

-60

-50

Introduce a tax exemption for capital gains and dividend income for corporations1

0

-500

Simplification and tightening of special tax rules

1 142

806

Simplify the special tax rules for agriculture

-30

-30

Abolish special tax rules for shareholder contributions

15

12

Increase lower limit for allowance for travel expenses

440

350

Tighten tax rules for board cost for commuters

180

150

Tighten documentation requirements for the allowance for high expenses due to sickness

122

98

Abolish the dependency allowance

45

35

Introduce tax on free board for employees on the continental shelf and pay increment for seamen2

240

191

Abolish the special allowance for cooperatives

30

0

Introduce ordinary tax rules for housing cooperatives

50

0

Abolish the allowance for extraordinary damage to housing

50

0

2. Sem Declaration follow-up

-2 730

-2 203

Abolish the tax on imputed income on owner occupied housing

-1 890

-1 510

Reduce customs duties on clothing

-50

-46

Increase the maximum allowance for gifts to voluntary organisations

-100

-80

Introduce a general valuation discount for all shares in the Wealth Tax

-350

-280

Increase the lower thresholds in the Wealth Tax

-205

-165

Increase the maximum parent allowance for families with more than 2 children

-15

-12

Hold taxes on beverages nominally unchanged

-120

-110

3. Environmental taxes

10

15

Introduce a tax incentive to promote sulphur-free fuels

-50

-45

Remove the exemption for the weight based annual tax for buses

45

45

Introduce the environmental differentiated weight based annual tax on EURO III-V

15

15

4. Changes in the Value Added Tax (VAT)

6 060

5 189

Increase the general VAT rate to 25 pct. (net)3

5 250

4 370

Increase the reduced VAT rate on food to 13 pct.

600

500

Increase the low VAT rate to 7 pct.

210

175

Introduce VAT on cinemas (net)4

5

7

Introduce VAT on transportation infrastructure services (net)5

-5

137

5. Other changes

-41

52

Changes in the fringe benefit taxation on vehicles (company cars etc.)

-160

-130

Changes in the special tax rules for shipowners

-110

0

Nominally unchanged allowances and thresholds etc.

229

182

7. Tax changes in 2004 with revenue effects in 2005

847

1 136

Changes in the electricity tax

1 000

995

Other changes following the National Budget 2004

-53

123

Other changes following the Revised National Budget 2004

-100

18

Proposed tax changes in the budget for 2005

-3 279

-2 786

Total tax revenue changes in 2005

-2 432

-1 650

1) The exemption provisions apply to dividends earned from 1 January 2004 onwards, as well as to capital gains and losses realised from 26 March 2004 onwards. Consequently, the changes have an accrued effect in 2004. Since the companies pay their taxes in arrears, the cash effect will not accrue until 2005.

2) Expenditure side changes to the net wage scheme as a result hereof have not been included in the tax change figure.

3) This is a net figure reflecting that the increased VAT rate automatically implies increased expenditure connected to the Social Security Act, and increased expenditure of VAT compensation to the municipal sector.

4) This is a net figure, reflecting the film subsidy reduction of about NOK 15 million.

5) This is a net figure, reflecting the reduction in subsidies for the National Rail Administration and Avinor’s regional airports to match the accrued value of the VAT deductions.

Source: Ministry of Finance.

Table 2 sums up important statutory tax rates and thresholds for 2004 and the 2005 proposal.

Table 2 Statutory personal and corporate tax rules 2004 and the proposal for 2005

 

2004-rules

Proposal 2005

 

 

 

Income tax rates for personal tax payers

Central government income surtax

Tax base: Personal income, i.e. gross labour and pension income.

Tax bracket 1

 

 

Threshold, Class 1 [1]

NOK 354 300

NOK 381 000

Threshold, Class 2

NOK 378 600

NOK 393 700

Rate [2]

13.5 percent

11.0 percent

Tax bracket 2

 

 

Threshold, Class 1 and 2

NOK 906 900

NOK 943 200

Rate

19.5 percent

15.5 percent

 

 

 

Statutory tax rates on ordinary income

 

 

Tax base: Ordinary income, i.e. labour, pension and net capital income less allowances.

Standard tax rate

28.0 percent

28.0 percent

Tax rate for individuals in Finnmark and Northern Troms

24.5 percent

24.5 percent

 

 

 

Compulsory Social Security Contributions to the National Insurance Scheme

Employees’, self-employed and pensioner’s social security contributions

Wage income and income from self-employment in primary industries

7.8 percent

7.8 percent

Income from other self-employment

 

 

Under 12 G [3]

10.7 percent

10.7 percent

Above 12 G

7.8 percent

10.7 percent

Pensions

3.0 percent

3.0 percent

Threshold for low incomes

NOK 23 000

NOK 29 600

Contribution rate for low incomes [4]

25.0 percent

25.0 percent


Employers’ social security contributions [5]

 

 

Zone 1 and 2

14.1 percent

14.1 percent

Zone 3

8.3 percent

10.2 percent

Zone 4

7.3 percent

9.5 percent

Zone 5

0.0 percent

0.0 percent

 

 

 

Extra employers’ social security contribution for high wages

 

 

Rate

12.5 percent

12.5 percent

Threshold [6]

16 G

16 G

 

 

 

Maximum effective marginal tax rates

Ordinary income (individual taxpayers and corporations)

28.0 percent

28.0 percent

Received dividends (in pct. of distributed profits)

28.0 percent

28.0 percent

Wage income excl. employer’s social security contributions

55.3 percent

51.3 percent

Wage income incl. employer’s social security contributions

64.7 percent

61.5 percent

Income from self-employment

55.3 percent

54.2 percent

 

 

 

Allowances and tax credits

Allowances only apply in the calculation of ordinary income.

 

 

Standard reliefs:

 

 

Standard allowance (all individual taxpayers)

 

 

Class 1

NOK 32 900

NOK 34 200

Class 2

NOK 65 800

NOK 68 400

 

 

 

Basic allowance for wage income

Rate

24.0 percent

27.0 percent

Maximum [7]

NOK 47 500

NOK 56 000

Minimum

NOK 4 000

NOK 4 000

 

Basic allowance for pension income

Rate

24.0 percent

24.0 percent

Maximum7

NOK 47 500

NOK 49 400

Minimum

NOK 4 000

NOK 4 000

 

 

 

Special wage income allowance [8]

NOK 31 800

NOK 31 800

 

 

 

Non-standard reliefs:

 

 

Parent allowance (for documented expenses for child care)

 

 

Maximum allowance

 

 

One child

NOK 25 000

NOK 25 000

Two children

NOK 30 000

NOK 30 000

For each subsequent child

 

+ NOK 5 000

 

 

 

Allowance for work-related travel expenses

 

 

Rate pr. km

NOK 1.4

NOK 1.4

Allowance for calculated travel expenses exceeding

NOK 9 200

NOK 12 800

 

 

Maximum allowance for gifts to voluntary organisations

NOK 6 000

NOK 12 000

 

 

 

Maximum allowance for labour union fees

NOK 1 800

NOK 1 800

 

 

 

Allowance for individuals in Finnmark and Northern Troms

 

 

Class 1

NOK 15 000

NOK 15 000

Class 2

NOK 30 000

NOK 30 000

 

 

Allowance for premiums and contributions to occupational pension schemes in the private and public sector

unlimited

unlimited

 

 

 

Maximum allowance for premiums and contributions to individual pension savings schemes

NOK 40 000

NOK 40 000

 

 

 

Allowance for interest payments

unlimited

unlimited

 

 

 

Allowance for high expenses due to illness

 

 

Minimum [9]

NOK 9 180

NOK 9 180

Maximum

unlimited

unlimited

 

 

Dependency allowance (pr. person)

NOK 5 000

abolished

 

 

 

Tax credit for home savings scheme for youths (wastable)

 

 

Tax credit rate

20.0 percent

20.0 percent

Maximum savings pr. year

NOK 15 000

NOK 15 000

Upper limit of total savings

NOK 100 000

NOK 100 000

 

 

 

Special tax rules for elderly, disabled and single parents

 

 

Old age and disability allowance

NOK 18 360

NOK 18 360

 

 

 

Special tax shelter for pensioners with low ordinary income

Applicable until normal tax rules for ordinary income are more favourable

Tax rate

55.0 percent

55.0 percent

 

 

 

Tax-free net income [10]

 

 

Singles

NOK 88 600

NOK 91 100

Married couples

NOK 143 800

NOK 151 000

Imputed income from net wealth (added to net income)

 

 

Rate

2.0 percent

2.0 percent

Threshold

NOK 200 000

NOK 200 000

 

 

 

Universal cash transfers

 

 

Transfer for dependent children

NOK 11 640

NOK 11 640

 

 

 

Non-universal cash transfers

 

 

Additional transfer for children in Finnmark and Northern Troms

NOK 3 840

NOK 3 840

Additional transfer for single parents with children under 3 years[11]

NOK 7 920

NOK 7 920

 

 

 

Imputed income rules

 

 

Imputed rate of return on capital for self-employed (split model)

7.0 percent

7.0 percent

 

 

 

Imputed income from owner-occupied housing (incl. second homes)

Tax bracket 1

 

 

Threshold [12] (assessed housing value)

NOK 80 000

abolished

Imputed rate of return

2.5 percent

 

Tax bracket 2

 

 

Threshold (assessed housing value)

NOK 451 000

abolished

Imputed rate of return

5.0 percent

 

 

 

 


 

 

 

 

 

Tax on net wealth

 

 

 

 

 

2004-rules

Proposal 2005

 

Thresholds. NOK

Rates

Thresholds. NOK

Rates

Local government

 

 

 

 

Class 1 and class 2

0 - 120 000

0.0 percent

0 - 151 000

0.0 percent

 

120 000 -

0.7 percent

151 000 -

0.7 percent

Central government

 

 

 

 

Class 1

0 - 120 000

0.0 percent

0 - 151 000

0.0 percent

 

120 000 - 540 000

0.2 percent

151 000 - 540 000

0.2 percent

 

540 000 -

0.4 percent

540 000 -

0.4 percent

 

 

 

 

 

Class 2

0 - 150 000

0.0 percent

0 – 181 000

0.0 percent

 

150 000 - 580 000

0.2 percent

181 000 – 580 000

0.2 percent

 

580 000 -

0.4 percent

580 000 -

0.4 percent


 

 

 

 

2004-rules

Proposal 2005

 

 

 

Corporate taxation

 

 

Statutory corporate tax rate (on ordinary income)

28.0 percent

28.0 percent

 

 

 

Depreciation rates

 

 

Group A (office and computer equipment)

30 percent

30 percent

Group B (acquired goodwill)

20 percent

20 percent

Group C (trucks, buses and trailers)

20 percent

20 percent

Group D (tractors, passenger cars, machinery, furniture and fixtures etc.)

20 percent

20 percent

Group E (ships and boats)

14 percent

14 percent

Group F (aircraft)

12 percent

12 percent

Group G (structures for transmission and distribution of electric power and electrotechnical equipment in hydroelectric power plants)

5 percent

5 percent

Group H (construction and building, hotels) [13]

4 (8) percent

4 (8) percent

Group I (commercial buildings)

2 percent

2 percent

Table 3 sums up the indirect tax rates for 2004, the proposal for 2005, and the percentage change from 2004 to 2005. Small deviations from the expected price increase of 2.2 percent in the reference system are due to rounding off.

Table 3 Indirect Tax Rates in 2004 and proposed rates for 2005

Category

Rate in 2004

Proposed rate for 2005

Change in pct.

VAT, percent of sales value[14]

 

 

 

Ordinary rate

24

25

1

Reduced rate

12

11

1

Low rate

6

7

1

 

 

 

Alcoholic beverages

 

 

 

Spirits and spirits-based coolers etc. above 0.7 pct.

 

 

 

NOK/percent per litre

5.54

5.54

0.0

       

Other alcoholic beverages from 4.75 to 22 pct.

 

 

 

NOK/percent per litre

3.61

3.61

0.0

 

 

 

 

Other alcoholic beverages up to 4.75 pct., NOK/litre

 

 

 

a) 0.00-0.70 percentage of alcohol

1.58

1.58

0.0

b) 0.70-2.75 percentage of alcohol

2.47

2.47

0.0

c) 2.75-3.75 percentage of alcohol

9.35

9.35

0.0

d) 3.75-4.75 percentage of alcohol

16.18

16.18

0.0

 

 

 

 

Tobacco

 

 

 

Cigars, NOK per 100 grams

177

181

2.2

Cigarettes, NOK per 100 units

177

181

2.2

Smoking tobacco, NOK per 100 grams

177

181

2.2

Snuff, NOK per 100 grams

57

58

2.2

Chewing tobacco, NOK per 100 grams

57

58

2.2

Cigarette paper, NOK per 100 units

2.70

2.76

2.2

 

 

 

 

Purchase tax on vehicles

 

 

 

Vehicles, category a [15]

 

 

 

Weight tax, NOK per kg

 

 

 

Initial 1 150 kg

34.00

34.75

2.2

Next 250 kg

68.00

69.50

2.2

Next 100 kg

136.01

139.00

2.2

Remainder

158.18

161.66

2.2

Piston displacement tax, NOK per cm3

     

Initial 1 200 cm3

10.04

10.26

2.2

Next 600 cm3

26.28

26.86

2.2

Next 400 cm3

61.82

63.18

2.2

Remainder

77.23

78.93

2.2

Motor effect tax, NOK per kW

     

Initial 65 kW

131.33

134.22

2.2

Next 25 kW

479.00

489.54

2.2

Next 40 kW

958.30

979.38

2.2

Remainder

1 621.68

1 657.36

2.2

Vehicles, category b [16], percent of category a

20

20

-

Vehicles, category c [17], percent of category a

13

13

-

Vehicles, category d [18], percent of category a

55

55

-

Vehicles, category e [19], percent of value

36

36

-

Vehicles, category f [20], unit tax

9 029

9 228

2.2

Piston displacement tax, NOK per cm3

 

 

 

Initial 125 cm3

0

0

-

Next 775 cm3

31.02

31.70

2.2

Remainder

68.00

69.50

2.2

Motor effect tax, NOK per kW

     

Initial 11 kW

0

0

-

Remainder

401.81

410.65

2.2

Vehicles, category g

     

Weight tax, NOK per kg

     

Initial 100 kg

12.73

13.01

2.2

Next 100 kg

25.45

26.01

2.2

Remaining

50.89

52.01

2.2

Piston displacement tax, NOK per cm3

 

 

 

Initial 200 cm3

2.66

2.72

2.2

Next 200 cm3

5.30

5.42

2.2

Remainder

10.60

10.83

2.2

Motor effect tax, NOK per kW

     

Initial 20 kW

33.93

34.68

2.2

Next 20 kW

67.85

69.34

2.2

Remainder

135.70

138.69

2.2

 

 

 

 

Vehicles, category h[21], percent of category a

40

40

-

Vehicles, category i[22], NOK

2 973

3 038

2.2

Vehicles category j[23], percent of value

35

35

-

 

 

 

 

Annual tax, NOK per year

 

 

 

Ordinary rate

2 755

2 815

2.2

Motor cycles

1 550

1 585

2.3

Caravans

920

940

2.2

Vehicles with a total weight exceeding 3.5 tons

1 745

1 785

2.3

Tractors, mopeds, etc.

350/175

360/180

2.9/2.9

 

 

 

 

Annual weight based tax, NOK per year

varies

varies

2.2

 

 

 

 

Re-registration tax

varies

varies

2.2

 

 

 

 

Petrol, NOK per litre

 

 

 

Leaded

4.80

-

-

Unleaded

3.96

-

-

Sulphur-free [24]

-

4.03

-

Low-sulphur [25]

-

4.07

-

 

 

 

 

Autodiesel, NOK per litre

 

 

 

Low-sulphur [26]

2.88

-

-

High-sulphur [27]

3.23

-

-

Sulphur-free [28]

-

2.92

-

Low-sulphur [29]

-

2.97

-

 

 

 

 

Marine engines, NOK per HP

132.00

135.00

2.3

 

     

Electricity, NOK per kWh

 

 

 

General consumption tax

9.67

9.88

2.2

Reduced rate

0.45

0.45

-

 

 

 

Lubricating oil, NOK per litre

1.59

1.62

2.2

 

 

 

 

Mineral products

     

Base-tax on heating oil, NOK per litre

0.405

0.414

2.2

CO2-tax, ordinary rate

     

Petroleum activity, NOK per litre or Sm3

0.76

0.78

2.2

Mineral oil, NOK per litre

0.51

0.52

2.2

Petrol, NOK per litre

0.76

0.78

2.2

CO2-tax, reduced rate

     

Mineral oil, NOK per litre

0.30

0.31

2.2

Petrol, NOK per litre

0.27

0.28

2.2

Sulphur tax, ordinary rate, NOK per litre

0.07

0.07

0.0

Sulphur tax, reduced rate, NOK per litre

0.029

0.030

3.4

 

     

Waste tax

 

 

 

Landfills, NOK per ton

 

 

 

Landfills – high environmental standard

400

409

2.2

Landfills – low environmental standard

522

533

2.2

Incineration plants, NOK per waste unit

varierer

varierer

 

CO2-tax on incinerated waste, NOK per ton

39.70

40.57

2.2

 

 

 

 

Tax on health- and environmentally damaging chemicals

 

 

 

Tax on trichloreten, NOK per kg

54.51

55.71

2.2

Tax on tetrachloreten, NOK per kg

54.51

55.71

2.2

 

 

 

 

Tax on greenhouse gases HFC and PFC

 

 

 

NOK per ton CO2-equivalents

183.24

187.27

2.2

 

 

 

 

Chocolate and sweets, NOK per kg

15.45

15.79

2.2

 

 

 

 

Non-alcoholic beverages

 

 

 

Finished product, NOK per litre

1.58

1.58

0.0

Consentrate (syrup), NOK per litre

9.64

9.64

0.0

Carbonate, NOK per kg

64.00

64.00

0.0

 

 

 

 

Tax on beverage packaging, NOK per unit

 

 

 

Environmental tax

 

 

 

a) Glass and metals

4.36

4.46

2.2

b) Plastics

2.63

2.69

2.2

c) Carton

1.09

1.11

2.2

Base-tax on disposable beverage packaging.

0.89

0.91

2.2

 

 

 

Sugar, NOK per kg

5.99

6.12

2.2

 

 

 

 

Document tax, percent of sales value

2.5

2.5

-

4 Allocation of public sector revenue from direct and indirect taxes

Table 4 offers an overall overview of the main categories of direct and indirect taxes, and the part of the public sector to which these accrue. Overall revenue from direct and indirect taxes to central and local government is estimated at about NOK 750 billion for 2004. About 86 percent of overall revenue from direct and indirect taxes accrue to central government, whilst the proportions accruing to municipalities and counties are just below 12 percent and just over 2 percent, respectively. The main part of the tax revenue accruing to local government is in the form of income and wealth tax paid by individual taxpayers.

Furthermore, the table shows that about 33 percent of central government revenue originates from value added tax, excise duties and customs duties. Just below 24 percent originates from income and wealth tax, together with employee’s Social Security contributions from personal taxpayers, whilst just below 20 percent is in the form of income and wealth tax from those who pay their taxes in arrears, together with employer’s Social Security contributions from Mainland Norway. Just below 21 percent of 2004 government revenue is represented by direct and indirect taxes from the petroleum sector. Other direct and indirect taxes amount to just below 3 percent.

Table 4 Accrued direct and indirect taxes allocated by tax creditors.1) 2004 estimates. NOK billion

 

Central Government

Local Government

Total

Munici-palities

Counties

Personal taxpayers

153.4

84.1

15.5

253.0

Tax on ordinary income

71.9

78.5

15.5

165.8

Central Government Income Surtax

16.6

-

-

16.6

Employees’ Social Security Contribution

62.5

-

-

62.5

Wealth Tax

2.4

5.6

-

8.0

Corporate taxpayers

38.2

1.3

0.2

39.7

Corporate tax2

38.0

1.3

0.2

39.6

Wealth Tax

0.2

0.0

-

0.2

Property Tax

-

3.3

-

3.3

Employers’ Social Security Contributions

88.7

-

-

88.7

Indirect Taxes

214.5

-

-

214.5

Value Added Tax

139.3

-

-

139.3

Excises and custom duties

75.3

-

-

75.3

Taxes on petroleum production

133.5

-

-

133.5

Income tax

128.9

-

-

128.9

Extraction taxes.

4.6

-

-

4.6

Other taxes

17.4

0.6

-

18.0

Total tax revenue

645.8

89.3

15.7

750.8

Of this: Direct taxes

431.2

89.3

15.7

536.2

1) Total revenues are in accordance with National Accounts definitions. The classification of type of tax is however a little different.

2) Including tonnage tax for shipowners (within the special shipping tax scheme).



[1] The tax system has two tax classes. Most tax payers are taxed in class 1. Single parents and married couples have the option to be taxed in class 2.

[2] The income surtax is 9.5 pct. in tax bracket 1 for taxpayers in Finnmark and Northern Troms.

[3] The G is the basic amount in the Social Security scheme. Average G were approx. NOK 58 139 in 2004 and estimated to NOK 60 465 in 2005 (G is normally adjusted May 1 each year).

[4] Apply until normal rates are more favourable.

[5] Lower rates apply for small businesses and agriculture and fisheries in zone 2-4.

[6] This is approximately NOK 930220 in 2004 and NOK 967440 in 2005, cf. footnote 3.

[7] Maximum Basic allowance for both wage and pension income is limited to the maximum for wage income, i.e. NOK 56000.

[8] The taxpayer must choose between total basic allowance for wage and pension income and the special wage income allowance.

[9] For 2004 the allowance apply (with the amount NOK 9180) for documented expenses between NOK 6120 and 9180. From 2005 documented expenses must exceed NOK 9180. For disabled an allowance is given for documented expenses regardless of size.

[10] Net income equals gross income (labour, pension and capital) less basic allowance. Capital losses and interest payments are also deducted. Standard allowance and Old Age and Disability allowance are not applicable.

[11] The transfer only applies for single parents that receive full transitional benefit.

[12] There is no threshold for second homes.

[13] Buildings with simple construction, i.e. that commercial use is assumed to be less than 20 years, can be depreciated with a rate of 8 pct.

[14] The changes in VAT rates are given in percentage points.

[15] Passenger cars.

[16] Class 2 delivery trucks.

[17] Motor caravans.

[18] Dual-purpose cars with total allowed weight not exceeding 7500 kg.

[19] Weasels.

[20] Motor cycles.

[21] Taxis.

[22] Veteran vehicles.

[23] Minibuses.

[24] Petrol with a sulphur content of 10 ppm or less.

[25] Petrol with a sulphur content between 10 and 50 ppm.

[26] Autodiesel with a sulphur content of 50 ppm or less.

[27] Autodiesel with a sulphur content of more than 50 ppm.

[28] Autodiesel with a sulphur content 10 ppm or less.

[29] Autodiesel with a sulphur content between 10 and 50 ppm.