National Budget 2008

National Budget 2008

These pages contain information in English about Norway's National Budget for 2008, presented to the Storting as Report no. 1 (2007-2008) on 5 October 2007. The National Budget presents the Government's programme for the implementation of economic policy and projections for the Norwegian Economy.

Royal Norwegian Ministry of Finance

Kristin Halvorsen
Minister of Finance
October 2007

Key Figures 2008: Overview and rates of direct and indirect taxes

Fiscal Budget 2008: Underpinning Macroeconomic Stability

Proposed Amendments to the Norwegian Special Tax Regime for Shipping Companies

Sound Management of the Government Pension Fund

Norway's Plans for Trading in GHG Emissions

Direct and Indirect Taxes - Main Features of the 2008 Proposal

Direct and Indirect Taxes - Main Features of the 2008 Proposal

1 Direct and Indirect Taxes – Main Features of the Proposal

The objectives of the Government’s tax policy are to safeguard revenue for communal purposes, contribute to fairness in distribution and an improved environment, promote employment throughout the country and enhance the workings of the economy. By reverting aggregate direct and indirect taxes to the 2004 level, the Government has made it possible to strengthen welfare schemes and communal benefits. At the same time, the distributional profile of the tax system has been improved as a consequence of the introduction of dividend tax, an increase in the basic allowance, as well as a fairer and higher wealth tax.

The main tax policy concerns are pursued in the proposed changes in direct and indirect taxes for 2008:

  • Overall direct and indirect taxes to be maintained at the 2004 level.
  • The distributional profile of the tax system shall be further strengthened. The Government improves the distributional profile of the wealth tax by expanding the tax bases and increasing the minimum allowance.
  • The system changes from the tax reform shall be preserved by, inter alia, preventing increases in the difference between the tax rates on labour income and capital income. This ensures that the tax system is stable and predictable, which is an important factor in making it attractive to invest and engage in business activities in Norway.
  • The tax system shall promote environmentally sound conduct. Considerable weight is attached to environmental and energy taxes.
  • Overpriced government fees to be reduced to bring such fees more in line with actual costs.

Fairer distribution

The Government is submitting several proposals that will strengthen the distributional profile of the tax system. One example is the abolition of the 15 pct. discount currently applied to the valuation of equities, primary capital certificates and equity fund units for wealth tax purposes. The assessed values of homes, holiday homes and other real estate, excepting agricultural properties and power plants, will be increased by 10 pct. Such an increase is necessary to prevent the relatively strong price growth on homes from further amplifying the distortions characterising the wealth tax. These revenues are used to increase the minimum allowance against the wealth tax to NOK 350,000 for singles and NOK 700,000 for couples. This means that many people with relatively low taxable wealth, hereunder pensioners who in large part keep their wealth in the form of bank deposits, will be exempted from wealth tax. 180,000 fewer persons will pay wealth tax under the Government’s proposal. About half of these are pensioners.

In addition, the Government will tighten the so-called 80-percent rule, which curtails the wealth tax of those with relatively high taxable wealth and low ordinary income. The Government proposes an increase in the rate of wealth tax that has to be paid irrespective of the rule, from 0.6 pct. to 0.8 pct. of net wealth in excess of NOK 1 million. The proposal is estimated to increase revenues by NOK 40 million accrued in 2008.

Whilst the tax increases are aimed at increasing the tax paid by those with high incomes and wealth, the Government proposes tax cuts that will benefit large groups. In addition to increasing the minimum allowance against the wealth tax, the Government proposes an increase in the allowance for labour union fees and the parent allowance. Furthermore, the passport fee for adults is reduced.

The proposed income and wealth tax changes will increase the tax of those with gross incomes in excess of NOK 1 million. The increases are highest for perso­ns with a gross income in excess of NOK 3 million, who will on average face a tax increase of about NOK 27.000, cf. Table 1. The tax increase is primarily caused by the abolition of the discount applicable to equities. Per­sons with gross incomes of less than NOK 1 million will on average see their tax unchanged or reduced. The distributional effects of enforcing the tax liabilities of the shipping companies and tightening the 80-percent rule on limitation of the wealth tax are additional hereto, as it has not been possible to incorporate these in the distributional calculations.

Table 1 Average change in tax for different gross income intervals1. 2008 tax proposal compared to wage-adjusted 2006 rules (the reference system). All persons 17 years and older. NOK

Gross income (NOK thousands)

Number of persons

Average tax under the 2008 reference system

Change in tax

Of which change in wealth tax

Average tax under the 2008 proposal (per cent)

Change in average tax (percentage points)

0-150

745 000

5 700

0

-100

6.9

0.0

150-200

398 000

19 200

-100

-200

10.9

-0.1

200-250

387 000

34 200

-200

-200

15.1

-0.1

250-300

387 000

51 700

-300

-200

18.7

-0.1

300-350

404 000

68 300

-300

-200

20.9

-0.1

350-400

374 000

84 600

-300

-100

22.5

-0.1

400-450

295 000

100 700

-300

-100

23.7

-0.1

450-500

207 000

120 300

-400

-100

25.3

-0.1

500-600

234 000

148 200

-400

-100

27.2

-0.1

600-750

151 000

196 600

-300

0

29.5

0.0

750-1000

100 000

273 700

-200

200

32.1

0.0

1000-2000

67 000

441 800

900

1 400

34.2

0.1

2000-3000

9 000

803 700

5 800

6 200

33.6

0.2

Over 3000

10 000

2 301 500

27 100

27 700

31.4

0.4

Alle

3 768 000

82 300

-100

0

23.6

0.0

1) Excluding changes to indirect taxes. Rounded off to the nearest NOK 100.
Sources: Statistics Norway and the Ministry of Finance.

 

 

A focus on climate and the environment

The Government has, through the Climate Report, defined an ambitious climate policy, including the procurement of quotas abroad and measures to reduce greenhouse gas emissions domestically. The Government emphasises the use of cross-sectoral, cost-effective measures like taxes and quotas. It is therefore important to ensure that these measures encompass as many sources of emission as possible. Over time, the Government is aiming for the most comprehensive quota system possible. The Government is therefore also contemplating the inclusion of other activities that are not subject to mandatory quotas in the EU countries. It was announced in the Climate Report that the Government will increase environmental and climate taxes, and offset this by corresponding reductions in other direct and indirect taxes. The budget proposal contains a number of proposals of this nature:

  • The CO2 tax on mineral oil for use in domestic aviation is increased by 10 øre per litre. The proposal is assumed, on an uncertain basis, to increase net revenues by NOK 50 million accrued in 2008.
  • The base tax on heating oil, etc., is increased by 40.5 øre per litre, thus bringing this tax in line with the electricity tax. The proposal is estimated to increase revenues by NOK 550 million accrued in 2008.
  • The motor vehicle taxes are changed by way of environmental differentiation of the annual tax on motor vehicles, by increasing the vehicle scrap deposit refund on a temporary basis for older vehicles with high local emissions, and by increasing the diesel tax. In aggregate, these changes will entail a tax reduction of NOK 155 million accrued in 2008.

Motor vehicle taxes – Additional details

It is proposed, as was announced in the 2007 budget, that the annual tax on motor vehicles for 2008 be environmentally differentiated. This is achieved by reducing the annual tax on motor vehicles by NOK 330 on all vehicles, except for diesel vehicles without a factory-fitted particle filter. These vehicles will be subjected to a tax increase in the amount of NOK 100. Such differentiation provides an incentive to acquire vehicles with relatively low local emissions, like, for example, diesel vehicles with a factory-fitted particle filter. One also proposes a temporary increase in the vehicle scrap deposit refund for vehicles with high local emissions. In aggregate, this entails a tax reduction of NOK 590 million accrued in 2008.

The existing tax differential between auto diesel and petrol cannot be justified by differences in the environmental costs associated with these two types of fuel. The Government therefore proposes a reduction in this difference by increasing the diesel tax by 20 øre per litre. The proposal is estimated to increase revenues by NOK 415 million accrued in 2008.

These changes to motor vehicle taxes will, when taken together, contribute to a reduction in local motor vehicle emissions that are harmful to health and the environment.

The Committee on Excise Duties

The Committeeon Excise Duties submitted its report on 22 June 2007. The Committee has looked at how the current excise duties meet the objectives of generating revenues for the State and adjusting for external costs in the best possible manner. The NOU 2007: 8 Green Paper, An Examination of Excise Duties, has been circulated for comments, with a deadline of 20 October 2007.

Reduction in overpriced government fees

The use of sectoral duties and fees to fund the provision of government services has become very widespread. In June 2006, the Ministry of Finance laid down new guidelines to clarify which conditions shall be met in order to justify the introduction of sectoral duties and fees within an area. The guidelines entered into force immediately as far as new schemes are concerned, whilst one is aiming for the gradual adaptation of existing schemes. The new guidelines also imply a clearer budgetary distinction between sectoral fees and duties.

The Government proposes changes to sectoral fees and duties representing an annual revenue loss of NOK 254 million. The passport fee will be reduced to a level matching costs. This implies a fee reduction of NOK 207 million in 2008. In addition, the fees for registration in the Brønnøysund Register Centre are reduced by NOK 50 million, and the fees relating to the Register of Certified Fishing Vessels by NOK 10 million. The sectoral duty charged to fund the activities of the Financial Supervisory Authority of Norway is increased by NOK 13 million.

The Government will continue to reduce overpriced government fees in future budgets. Reference is made to more detailed coverage of the various proposals in Proposition No. 1 (2007–2008) to the Storting for the relevant sectoral ministries.

Changes to the taxation of businesses

The current tax regime for shipping companies results in new investments in shipping being channelled, to a large extent, to companies registered abroad rather than in Norway. The Government proposes the replacement of the current tax regime for shipping companies by a regime under which the companies are exempted from corporation tax, in line with regimes adopted by a number of EU countries. This will make investments in Norwegian shipping more attractive.

It is further proposed that companies encompassed by the tax regime for shipping companies shall, when transferring to the new Norwegian tax regime for shipping companies, pay two-thirds of their accrued tax liabilities as per 1 January 2007, over a period of ten years as from the 2007 tax year, in equal annual instalments. It is proposed that the remaining one-third of the tax liabilities can be retained by each company in the form on an allocation to a reserve for environmental measures, etc. Approved environmental investments have to be made by yearend 2016. Any unused reserves will otherwise be repaid to the State. These changes are estimated to increase booked revenues by about NOK 1.4 billion in 2008.

The Government proposes certain changes to the tax rules pertaining to hydropower production. The objective is to stimu­late economically profitable investments in this sector, whilst ensuring that a reasonable share of the earnings of power companies with high profitability are set aside for communal purposes. One therefore intends, inter alia, to permit the consolidation of new, negative economic rent income at company level, and to abolish the risk supplement applicable to interest for purposes of calculating economic rent tax. Furthermore, the Government proposes that the rate of economic rent tax be increased by 3 percentage points, to 30 pct. It is proposed that these changes be introduced with effect from the 2007 tax year. The proposals increase booked revenue in 2008 by NOK 280 million. It is proposed, at the same time, that the lower threshold for paying economic rent tax for power plants be reduced, and that any operations subsidy be included in the economic rent income. It is proposed that these changes be introduced with effect from 2008, which will increase revenues by NOK 38 million accrued in 2008.

The Government also proposes a change in the rules for calculating the minimum and maximum limits defining the real estate tax base for new power plants. It is estimated, on an uncertain basis, that revenues from the real estate tax in the affected municipalities will increase by NOK 25 million accrued and booked in 2008.

Other changes to direct and indirect taxes

The Government is also proposing a number of other changes to direct and indirect taxes:

  • One will introduce a tax-favoured pension scheme from 2008, with a maximum annual allowance of NOK 15,000, in line with the pension compromise agreed by the Stortinget. The proposal implies an accrued tax reduction in 2008 in the amount of NOK 500 million.
  • The allowance for labour union fees is increased by NOK 450 to NOK 3,150. This represents a tax reduction of NOK 95 million accrued in 2008.
  • The supplement in the parent allowance for each child in excess of the first one is increased from NOK 5000 to NOK 15,000. The proposal is estimated, on an uncertain basis, to reduce revenues by NOK 200 million accrued in 2008.
  • Costs incurred in the administration of contribution based pension schemes shall not longer be included for purposes of calculating the contribution limit. This proposal implies a revenue loss of about NOK 8 million accrued in 2008.
  • The exemption limits applicable to the payment of employer’s social security contributions for voluntary organisations are increased to NOK 450,000 (limit on overall wage costs) and NOK 45,000 (limit per employee), respectively. The Government also proposes an increase in the exemption limits applicable to the duty to submit salary statements to the tax authorities for voluntary organisations, from NOK 2,000 to NOK 4,000. The proposals imply a tax reduction of NOK 40 million accrued in 2008.
  • Certain monetary limits will remain unchanged in nominal terms, hereunder the special allowance against wage income, the lower threshold for the payment of social security contributions, the special allowance for Finnmark and Northern Troms, the fishermen’s and seamen’s allowance, the travel allowance, the allowance for gifts to voluntary organisations, the special allowance for high expenses related to sickness and the maximum tax credits for home savings for people under the age of 34 years (BSU). The overall increase in tax revenue is estimated at NOK 255 million accrued in 2008, including interactive effects.
  • A tax exemption is introduced on the wealth of research institutes that receive basic appropriations, and that are organised as research foundations. The proposal represents a tax reduction of about NOK 5 million accrued in 2008.
  • The part of income from equities encompassed by the rate of return allowance is to be included in the income base for purposes of the 80-percent rule on the limitation of the wealth tax and the tax limitation rule. The proposal rectifies an unintended consequence of the tax reform, and is expected to have a limited effect on revenues.
  • The lower limit of the agriculture allowance is increased from NOK 45,000 to NOK 54,200. The proposal is a compensation for the proposed increase in the base tax on heating oil. The limits and rate of the special allowance for slate production are increased to the same level as for the agriculture allowance. In total, these proposals represent a tax reduction of about NOK 32 million accrued in 2008.
  • Capital gains from the sale of agricultural land are to be taxed as ordinary income only, and not to be included in computed personal income, if the aggregate annual gain is less than NOK 150,000. The proposal implies a tax cut of about NOK 10 million accrued in 2008.
  • The forestry factor applied when determining the assessed values of forests is to be reduced from 8 to 4 for the 2007 tax year and to 5 from 2008. The proposal is estimated to reduce revenues by about NOK 6 million accrued in 2007, and to increase revenues by about NOK 1 million accrued in 2008.
  • A requirement for employees to document actual lodging expenses from business travel will be introduced, and any lodging allowance in excess of the documented expenses will be taxed. It will still be profitable for employees to choose hotels that cost less than the lodging allowance. The proposal is estimated to increase revenues by NOK 100 million accrued in 2008.
  • The tax exemption for income from letting more than half of one’s home for less than half of the calendar year is to be abolished. Low letting income is exempted through the introduction of an exemption limit of NOK 20,000. The proposal represents a tax increase of NOK 55 million accrued for 2008.
  • One will introduce a tax exemption for the employer’s payment of kindergarten expenses in excess of the maximum price as from the 2007 tax year. The proposal implies an accrued tax reduction in 2007 in the amount of NOK 11 million.
  • Government employees are to be taxed on the benefit from free housing abroad. This proposal will ensure the equal tax treatment of private sector employees and government employees, and represents a revenue increase of NOK 25 million accrued in 2008.
  • One will introduce new tax rules for the determination of gross letting value for the taxation of free housing for retired farmers. The proposal implies a tax increase of NOK 20 million accrued in 2008.
  • One will introduce an annual tax exempted amount for gifts subject to inheritance tax, corresponding to one-half the basic amount of the social security system. The exempted amount will replace the exemption under the Inheritance Tax Act for so-called occasional gifts, i.e. gifts for birthdays, Christmas, weddings, etc. The proposal represents a tax reduction of NOK 7 million accrued in 2008.
  • Certain changes will be made to taxation on Svalbard as from 2008. The tax rate of the withholding tax scheme for wage income on Svalbard is to be reduced from 12 pct. to 8 pct. for incomes of less than 12 times the basic amount of the social security system, and to be increased to 22 pct. for any incomes in excess of the amount mentioned above. The special tax deduction of NOK 7,200 for tax years 2006 and 2007 will not be continued. Self employed persons on Svalbard shall no longer be required to calculate personal income, but net profits from their activities will be taxed as wage income. The tax rate on ordinary income is increased from 10 pct. to 16 pct., and the minimum allowance against ordinary income is increased from NOK 10,000 to NOK 20,000. These proposals are estimated to reduce revenues by NOK 3 million accrued in 2008.
  • For taxpayers who are domiciled in EEA countries, one will introduce declining-balance depreciation for fixed assets that are temporarily located within Norwegian tax jurisdiction, instead of the current straight-line depreciation. This is of particular relevance to rigs and ships. The ESA has indicated that the current rules appear not to be in conformity with the provisions of the EEA Agreement on the freedom to provide services to customers in other EEA states. The proposal is estimated to imply a revenue loss of NOK 50 million accrued in 2008.
  • Social security contributions on income from self-employment outside the primary sectors are to be increased by 0.3 percentage points, to 11 pct. The proposal is estimated to increase revenues by NOK 120 million accrued in 2008, and should be seen in the context of improved parental rights for the self-employed.
  • The CO2 tax on industries subject to mandatory quotas will be abolished. The proposal implies a tax reduction of NOK 90 million accrued in 2008.
  • The CO2 tax levied on the petroleum sector will be reduced to offset the estimated price of quotas. This will be booked as a change in the net cash flow from petroleum activities.
  • One will introduce a low rate of the base tax on heating oil for the wood-processing industry. The Ministry assumes that this will become necessary, as a result of the state aid rules under the EEA Agreement, when the CO2 tax on businesses subject to mandatory quotas is abolished. The proposal is estimated to increase revenues by NOK 20 million accrued in 2008.
  • The tax on snuff and chewing tobacco will be increased by 10 pct. on top of price adjustments. The proposal will generate extra revenues of NOK 35 million accrued in 2008.
  • One will implement changes to the Generalized System of Preferences (GSP) for the benefit of developing countries, which will imply a revenue loss of NOK 5 million accrued in 2008.
  • The commercial letting of holiday homes will be subject to value added tax, at a rate of 8 pct. This proposal represents a tax reduction of NOK 15 million accrued in 2008.
  • Commercial activities in Northern Troms and Finnmark, which have previously been exempted from electricity tax, will have to pay electricity tax at a reduced rate as from 1 January 2008 due to new EEA rules on minor state aid. The proposal represents a tax increase of NOK 4 million accrued in 2008.

 

Efforts to improve the tax system

The Government is working to improve the tax system in a number of important areas:

  • The pension reform represents a significant restructuring of the pension system. The reform emphasises, inter alia, that it should be profitable to continue working, and that it should be easy to combine a pen­sion with work. This will require certain modifications to the current tax system for pensioners. Weight is attached to achieving these goals with acceptable revenue and distribution effects. One aims to have modified tax rules in place well ahead of 2010, when the new pension rules enter into force.
  • The Standing Committee on Finance and Economic Affairs requested, in Recommendation No. 10 (2006–2007) to the Odelsting, Chapter 13, the Government to revert to the Storting with an assessment as to whether there are aspects of tax law where co-habitants should receive the same treatment as spouses. The Ministry of Finance is reviewing the regulatory framework to assess whether such equal treatment should be introduced. The Ministry will revert with suggestions as to the areas, if any, in which such equal treatment would be appropriate.
  • The Government will change the inheritance tax with a view to making it fairer, and to increasing its legitimacy. One is now working to improve the statistics pertaining to inheritance tax. This will provide a better basis for considering changes to the inheritance tax.
  • The tax reform aimed to put an end to the extensive tax planning under the split model. Under the split model, many people passed on as capital income what was, in fact, labour income, in order to pay less tax. The introduction of a dividend tax with a rate of return allowance has increased the tax on dividends paid to owners who are individuals. The Government prioritises the commissioning of independent studies as a basis for evaluating the tax reform. This will shed light on the question of whether the reform has worked as intended.

2. Effects on revenue of the proposed changes to direct and indirect taxes

Table 2 shows the estimated effects on revenue of the Government’s proposed changes to direct and indirect taxes for 2008.

The effects on revenue have been calculated on the basis of a reference system for 2008. The reference system for direct taxes is based on the 2007 rules, with all income limits adjusted to 2008 levels, assuming wage growth of 5 percent. A taxpayer with an annual wage growth of 5 per cent will then end up with the same average tax rate under the reference system for 2008 as in 2007. In the reference system for indirect taxes, all volume-based taxes have been adjusted by an estimated price increase from 2007 to 2008 of 2.6 per cent. Consequently, the indirect tax burden under the reference system is unchanged in real terms from 2007 to 2008.

Tables 3 and 4 offer an overview of important direct and indirect tax rates and thresholds included in the Government’s proposal relating to direct and indirect taxes for 2008. The tables also show direct and indirect tax rates and thresholds for 2007, as well as percentage changes from 2007 to 2008. The percentage increases in the general allowances and thresholds from 2007 to 2008 may deviate somewhat from the estimated wage growth as the result of rounding off.

Table 2 Estimated effects on proceeds from changes in direct and indirect taxes proposed for 2008. The estimates have been calculated relative to the reference system for 2008. Negative figures reflect tax reductions. NOK million

Accrued

Booked

The wealth tax

40

32

Abolish the discount applicable to equities and increase the minimum allowance by NOK 130,000 to NOK 350,000. Increase the assessed values for homes, holiday homes and other real estate, except agricultural properties and power plants, by 10 pct

0

0

Tighten the 80-percent rule

40

32

The income tax base for individuals

-95

-106

Tax any lodging allowance in excess of documented lodging expenses

100

80

Increase the allowance for labour union fees by NOK 450 to NOK 3,150.

-95

-95

Increase the supplement in the parent allowance for each child in excess of the first one from NOK 5,000 to NOK 15,000

-200

-160

Introduce tax on the letting of one’s own home for less than half of the tax year

55

44

Introduce new rules on the determination of gross letting value for the taxation

of the benefit from free housing for retired farmers

20

16

Introduce tax exemption for the employer’s payment of kindergarten expenses

in excess of the maximum price1

0

-11

Introduce tax on the benefit from free housing for government employees abroad.

25

20

Other changes in direct taxation

-308

158

Introduce a new tax-favoured pension scheme

-500

0

Keep costs associated with contribution based pension schemes outside the contribution limit.

-8

0

Introduce an annual tax-exempted amount for gifts subject to inheritance tax, corresponding to one-half of the basic amount of the social security system.

-7

-2

Increase the exemption limits applicable to employer’s social security contributions and the

duty to submit salary statements to the tax authorities for voluntary organisations.

-40

-30

Introduce an exemption from tax on wealth held by research foundations

-5

0

Changes to the Svalbard tax

-3

-14

Maintain nominal monetary limits and interactive effects.

255

204

The taxation of businesses2

92

369

Change the taxation of power plants3

38

280

Change the rules for calculating the minimum and maximum limits under the

the real estate tax for new power plants4

25

25

Introduce declining-balance depreciation for fixed assets that are temporarily within

Norwegian tax jurisdiction, and that belong to taxpayers domiciled in EEA countries

-50

0

Tax on capital gains from the sale of agricultural land to be classified as ordinary

income only if total annual gains are less than NOK 150,000

-10

0

Increase the lower limit of the agriculture allowance from NOK 45,000 to NOK 54,200. 5 Increase limits and rates of the special allowance against income from slate production to the same level as for the agriculture allowance.

-32

-26

Reduce the forestry factor applied when determining the assessed values of forests6

1

-5

Increase social security contributions on income from self-employment outside

the primary industries by 0.3 percentage points to 11 pct

120

95

Environmental and energy taxes

534

486

Abolish the CO2 tax on onshore industries subject to quotas (mandatory quotas to be introduced).

-90

-80

Increase the CO2 tax on mineral oil for use in domestic aviation by 10 øre per litre7

50

45

Reduce the CO2 tax on petroleum activities (mandatory quotas to be introduced)8.

0

0

Increase the rate of the base tax on heating oil to the same level as that of the electricity tax

550

500

Introduce a low rate of the base tax on heating oil for the wood-processing industry

20

18

Discontinue the use of minor state aid for commercial activities in the Northern Troms and Finnmark, which will thereby pay a reduced electricity tax from 1 January 2008

4

3

Motor vehicle taxes

-155

-190

Environmental differentiation of the annual tax on motor vehicles9

-590

-590

Change the rules governing tax-exempt reconstruction of damaged motor vehicles.

20

20

Increase the diesel tax by 20 øre per litre

415

380

Sectoral duties and overpriced government fees

-254

-254

Reduce the passport fee for adults from NOK 990 to NOK 450

-207

-207

Reduce the fees relating to the Brønnøysund Register Centre.

-50

-50

Reduce the fees relating to the Register of Certified Fishing Vessels.

-10

-10

Change the sectoral duty relating to the Financial Supervisory Authority of Norway. Contribution from the supervisory bodies

13

13

Other changes in indirect taxation

30

26

Increase the tax on snuff by 10 pct.

35

30

Change the GSP Scheme

-5

-4

The value added tax

-15

-13

Introduce a 8 pct. value added tax on the commercial letting of holiday homes

-15

-13

New changes to direct and indirect taxes for 2008

-131

508

Previous resolutions with revenue effects materialising in 2008

198

596

Resolutions in connection with the National Budget 2007 and

the Revised National Budget 2007

-18

380

Resolutions in connection with the National Budget 2006 and

the Revised National Budget 2006.

216

216

Overall effect on revenue in 2008 10

67

1104

1) It is proposed that this change be introduced with effect from 2007.
2) The proposed collection of two-thirds of the accrued tax liabilities of shipping companies is estimated to increase booked revenue by NOK 1.4 billion each year for ten years as from 2008.
3) Changes to the special tax systems, hereunder changes to the economic rent tax for power plants, fall outside the scope of the tax pledge. It is proposed that permitting the consolidation of new negative economic rent income, abolishing the risk supplement applicable to interest, as well as increasing the economic rent tax be introduced with effect from 2007. It is proposed that reducing the exemption limit, etc., be introduced with effect from 2008.
4) Changes relating to the real estate tax fall outside the scope of the tax pledge.
5 The reduction represents full compensation for the agricultural sector for the increase in the base tax on heating oil compared to a continuation of the current lower limit of NOK 45,000.
6) The forestry factor is reduced from 8 to 4 for the tax year 2007, and increased to 5 from 2008. The proposal is estimated to reduce revenues by NOK 6 million accrued in 2007.
7) Net revenue effect. This includes increased appropriations over the Fiscal Budget in the amount of NOK 5 million in connection with the renegotiation of the Aviation Agreement.
8) Revenues from the petroleum sector are not included in the table because these are channelled to the Government Pension Fund – Global. The restructuring of the CO2 tax on petroleum activities reduces the cash flow in 2008 by NOK 1980 million accrued and NOK 990 million booked. This is outweighed by revenues from the sale of quotas, with the overall climate cost to the industry remaining more or less unchanged.
9) Net revenue effect. This includes increased appropriations for a higher vehicle scrap deposit refund in the amount of NOK 50 million.
10) The tax pledge was met upon the presentation of the National Budget 2007. The overall accrued revenue effect in 2008 is NOK 4 million when the accrued effect of changes to the economic rent tax for power plants (special tax) and to the real estate tax (voluntary, municipal tax) for power plants (NOK 63 million) is kept outside the tax pledge. When taking into consideration the overall net accrued revenue effect in 2007 resulting from resolutions and proposals after the presentation of the 2007 Budget (NOK-58 million), the tax level remains more or less unchanged from 2007 to 2008 (NOK -54million).
Source: Ministry of Finance.

 

 

Table 3 Direct tax rates and thresholds, etc. for 2007 and proposals for 2008

2007-rules

2008-rules

Changes from 2007 to 2008

Tax rate on ordinary income

Individuals1

28.0 pct.

28.0 pct.

-

Businesses

28.0 pct.

28.0 pct.

-

Surtax

Bracket 1

Lower threshold

NOK 400 000

NOK 420 000

5 pct.

Rate2

9.0 pct.

9.0 pct.

-

Bracket 2

Lower threshold

NOK 650 000

NOK 682 500

5 pct.

Rate

12.0 pct.

12.0 pct.

-

Social security contribution

Lower threshold for the payment of social security contribution

NOK 39 600

NOK 39 600

-

Levelling rate

25.0 pct.

25.0 pct.

-

Rate

Wage income

7.8 pct.

7.8 pct.

-

Income from self-employment within agriculture, forestry and fisheries

7.8 pct.

7.8 pct.

-

Other income from self-employment

10.7 pct.

11,0 pct.

0.3 pct.points

Pension income etc

3.0 pct.

3.0 pct.

-

Employer’s social security contribution

Zone I

14.1 pct.

14.1 pct.

-

Zone Ia3

14.1 pct.

14.1 pct.

-

Zone II

10.6 pct.

10.6 pct.

-

Zone III

6.4 pct.

6.4 pct.

-

Zone IV

5.1 pct.

5.1 pct.

-

Zone IVa

7.9 pct.

7.9 pct.

-

Zone V

0.0 pct.

0.0 pct.

-

Maximum effective marginal tax rates

Wage income excl. employer’s social security contribution

47.8 pct.

47.8 pct.

-

Wage income incl. employer’s social security contribution

54.3 pct.

54.3 pct.

-

Pension income

43.0 pct.

43.0 pct.

-

Income from self-employment within agriculture, forestry and fisheries

47.8 pct.

47.8 pct.

-

Other income from self-employment

50.7 pct.

51.0 pct.

0.3 pct.points

Dividends and distributions4

48.2 pct.

48.2 pct.

-

Personal allowance

Class 1

NOK 37 000

NOK 38 850

5 pct.

Class 25

NOK 74 000

NOK 77 700

5 pct.

Basic allowance in wage income

Rate

36.0 pct.

36.0 pct.

-

Lower threshold

NOK 4 000

NOK 4 000

-

Upper threshold6

NOK 63 800

NOK 67 000

5 pct.

Basic allowance in pension income

Rate

26.0 pct.

26.0 pct.

2.0 pct.points

Lower threshold

NOK 4 000

NOK 4 000

Upper threshold

NOK 53 400

NOK 56 100

5.1 pct.

Special wage income allowance7

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, etc8

Levelling rate

55.0 pct.

55.0 pct.

-

Tax-free net income

Single

NOK 99 600

NOK 104 600

5 pct.

Married couple

NOK 163 300

NOK 171 500

5 pct.

Net wealth surcharge

Rate

1,5 pct.

1.5 pct.

-

Limit

NOK 200 000

NOK 200 000

-

Special allowance for 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 pct.

30.0 pct.

-

Upper threshold

NOK 80 000

NOK 80 000

-

Special allowance for self-employed within agriculture etc

Income-independent allowance

NOK 45 000

NOK 54 200

20.4 pct.

Allowance rate above income-independent allowance

32.0 pct.

32.0 pct.

-

Maximum overall allowance

NOK 142 000

NOK 142 000

-

Special allowance for high expenses related to sickness

Lower threshold

NOK 9 180

NOK 9 180

-

Maximum allowance for premium paid to individual pension schemes

abolished

NOK 15 000

New

Allowance for travel between home and workplace

Rate per kilometre

NOK 1.40

NOK 1.40

-

Lower threshold

NOK 12 800

NOK 12 800

-

Maximum allowance for gifts to voluntary organisations, etc

NOK 12 000

NOK 12 000

-

Maximum allowance for labour union fees etc

NOK 2 700

NOK 3 150

16.7 pct.

Tax credits for home savings for people under the age of 34 (BSU)

Rate of tax credit

20.0 pct.

20.0 pct.

-

Maximum annual savings

NOK 15000

NOK 15000

-

Maximum savings under the scheme

NOK 100 000

NOK 100 000

-

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 15 000

200 pct.

Wealth tax9

Local government

Lower threshold

NOK 220 000

NOK 350 000

59.1 pct.

Rate

0.7 pct.

0.7 pct.

-

Central government

Bracket 1

Lower threshold

NOK 220 000

NOK 350 000

59.1 pct.

Rate

0.2 pct.

0.2 pct.

-

Bracket 2

Lower threshold

NOK 540 000

NOK 540 000

-

Rate

0.4 pct.

0.4 pct.

-

Wage allowance under the rate of return allowance method for sole proprietorships

15.0 pct.

15.0 pct.

-

Discount applicable to equities

15.0 pct.

abolished

-15.0 pct.points

Depreciation rates

Group a (office equipment etc.)

30 pct.

30 pct.

Group b (acquired goodwill)

20 pct.

20 pct.

Group c (lorries, trucks, buses, vans etc.)

20 pct.

20 pct.

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

20 pct.

20 pct.

Group e (ships, vessels, rigs etc.)

14 pct.

14 pct.

Group f (aircrafts)

12 pct.

12 pct.

Group g (structures for transmission and distribution of electric power and electro-technical equipment in hydroelectric power plants)

5 pct.

5 pct.

Group h (constructions and buildings, hotels etc.)10

4 (8) pct.

4 (8) pct.

Group i (commercial buildings)

2 pct.

2 pct.

1) The tax rate for Northern Troms and Finnmark is 24.5 pct.
2) The tax rate for Northern Troms and Finnmark is 7 pct. in bracket 1.
3) Zone Ia shall continue to pay employer’s social security contributions at a rate of 10.6 pct. until the difference between what the firm actually pays and what the firm would have paid at a rate of 14.1 pct. equals the de minimis state aid threshold. The threshold for 2008 is NOK 530,000 per firm. For road haulage firms the threshold is NOK 265,000.
4) Included corporate income tax (28 pct.)
5) Class 2 is applicable to single parents and taxpayers who provide for their spouse.
6) Maximum basic allowance for the sum of wage and pension income is limited upwards to the maximum basic allowance in wage income, i.e. NOK 67,000 in 2008.
7) Taxpayers will benefit from the largest of the basic allowance in wage income and the special wage income allowance.
8) The tax limitation rule also applies to single parents who receive transitional benefit.
9) The thresholds are valid for single tax payers. The thresholds for married spouses, who are jointly taxed for common wealth, are doubled compared to amounts given in the table.
10) Buildings of simple construction that are assumed to have a commercial service life of less than 20 years may be depreciated at a rate of 8 pct.

 

 


Table 4 Indirect tax rates for 2007 and proposed rates for 2008

Category of indirect tax

Current rate

Proposal 2008

Percentage change

Value added tax, per cent of sales value 1

Ordinary rate

25

25

-

Reduced rate

14

14

-

Low rate

8

8

-

Tax on alcoholic beverages

Spirit-based beverages in excess of 0.7 pct. alcohol by volume,

NOK/pct. alcohol and litre

5.74

5.89

2.6

Other alcoholic beverages from 4.7 to 22 pct. alcohol by volume,

NOK/pct. alcohol and litre

3.74

3.84

2.7

Other alcoholic beverages up to 4.7 pct. alcohol by volume, NOK/litre

a) 0.0-0.7 pct. alcohol by volume

1.64

1.68

2.4

b) 0.7-2.7 pct. alcohol by volume

2.56

2.63

2.7

c) 2.7-3.7 pct. alcohol by volume

9.68

9.93

2.6

d) 3.7-4.7 pct. alcohol by volume

16.76

17.20

2.6

Tax on tobacco goods

Cigars, NOK/100 grams

187

192

2.7

Cigarettes, NOK/100 units

187

192

2.7

Smoking tobacco, NOK/100 grams

187

192

2.7

Snuff, NOK/100 grams

60

68

13.3

Chewing tobacco, NOK/100 grams

60

68

13.3

Cigarette paper, NOK/100 units

2.86

2.93

2.4

Motor vehicle registration tax

Passenger cars, etc. Tax category a2

Weight tax, NOK/kg

initial 1150 kg

33.16

34.02

2.6

next 250 kg

72.27

74.15

2.6

next 100 kg

144.55

148.31

2.6

remainder

168.11

172.48

2.6

Motor effect tax, NOK/kW

initial 65 kW

120.59

123.73

2.6

next 25 kW

502.47

515.53

2.6

next 40 kW

1 205.92

1237.27

2.6

remainder

2 512.33

2 577.65

2.6

CO2-emissions, grams/km

initial 120 grams

40.20

41.25

2.6

next 20 grams

190.94

195.90

2.6

next 40 grams

502.47

515.53

2.6

remainder

1 406.90

1443.48

2.6

Delivery vans class 2. Tax category b,3

pct. of passenger car tax

22

22

-

Camper vans. Tax category c,4

pct. of passenger car tax

22

22

-

Weasels. Tax category e, pct. of value

36

36

-

Motor cycles. Tax category f, unit tax

9 558

9 807

2.6

Piston displacement tax, NOK/cm3

initial 125 cm3

0

0

-

next 775 cm3

32.83

33.68

2.6

remainder

71.99

73.86

2.6

Motor effect tax, NOK/kW

initial 11 kW

0

0

-

remainder

425.36

436.42

2.6

Snow scooters. Tax category g

Weight tax, NOK/kg

initial 100 kg

13.47

13.82

2.6

next 100 kg

26.95

27.65

2.6

remainder

53.87

55.27

2.6

Piston displacement tax, NOK/cm3

initial 200 cm3

2.82

2.89

2.5

next 200 cm3

5.61

5.76

2.7

remainder

11.22

11.51

2.6

Motor effect tax, NOK/kW

initial 20 kW

35.93

36.86

2.6

next 20 kW

71.82

73.69

2.6

remainder

143.65

147.38

2.6

Taxis. Tax category h,5 pct. of passenger car tax

40

40

-

Vintage cars. Tax category i, NOK

3 147

3 229

2.6

Mini buses, Tax category j,6 pct. of passenger car tax

40

40

-

Annual tax on motor vehicles, NOK/year

Ordinary rate

Diesel vehicles

2 915

3 090

6.0

Petrol vehicles and diesel vehicles with factory installed particle filter

2 915

2 660

-8.7

Motor cycles

1 645

1 690

2.7

Caravans

970

995

2.6

Tractors, mopeds, etc.

370

380

2.7

Annual weight-based tax, NOK/year

varies

varies

2.6

Re-registration tax

varies

varies

2.6

Petrol tax, NOK/litre

Sulphur-free 7

4.17

4.28

2.6

Low-sulphur 8

4.21

4.32

2.6

Auto diesel tax, NOK/litre

Sulphur-free 9

3.02

3.30

9.3

Low-sulphur 10

3.07

3.35

9.1

Marine engine tax, NOK/HP

140.00

143.50

2.5

Electricity consumption tax, øre/kWh

General rate

10.23

10.50

2.6

Reduced rate

0.45

0.45

-

Lubricating oil tax, NOK/litre

1.68

1.72

2.4

Tax on mineral products

Base-tax on heating oil

Mineral oil, NOK/litre

0.429

0.845

97.0

Mineral oil used in wood-processing industry, NOK/litre

-

0.120

-

CO2 tax

Petroleum activities, NOK/litre or Sm3

0.80

0.45

-43.8

Mineral oil, NOK/litre

0.54

0.55

1.9

Mineral oil in domestic aviation, NOK/litre

0.54

0.65

20.4

Mineral oil in the wood-processing, herring meal and fish meal industries, NOK/litre

0.27

0.28

3.7

Petrol, NOK/litre

0.80

0.82

2.5

Natural gas, NOK/Sm3

0.47

0.48

2.1

LPG, NOK/kg

0.60

0.62

3.3

Sulphur tax, NOK/litre

0.070

0.072

2.9

Tax on the final treatment of waste

Landfills for waste disposal, NOK/tonne

Landfills – high environmental standard

423

434

2.6

Landfills – low environmental standard

552

566

2.5

Incineration plants, NOK/emission unit

varies

varies

2.6

CO2 tax on waste to be incinerated , NOK/tonne

59.00

60.53

2.6

Tax on health- and environmentally damaging chemicals

Trichloreten, NOK/kg

57.69

59.19

2.6

Tetrachloreten, NOK/kg

57.69

59.19

2.6

Tax on greenhouse gases HFC and PFC

NOK/tonne CO2-equivalents

193.98

199.02

2.6

Tax on emissions of NOx, NOK/kg

15.00

15.39

2.6

Tax on chocolate, etc., NOK/kg

16.36

16.79

2.6

Tax on non-alcoholic beverages

Finished product, NOK/litre

1.64

1.68

2.4

Concentrate (syrup), NOK/litre

9.99

10.25

2.6

Tax on beverage packaging, NOK/unit

Environmental tax

a) Glass and metals

4.62

4.74

2.6

b) Plastics

2.79

2.86

2.5

c) Carton and cardboard

1.15

1.18

2.6

Base-tax on disposable packaging

0.95

0.97

2.1

Sugar tax, NOK/kg

6.34

6.50

2.5

Stamp duty, per cent of sales value

2.5

2.5

-

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. For vehicles with no specification as to CO2 emissions, piston displacement will be retained as a factor in determining the amount of tax.
3) Group b: Delivery vans class 2. Change stated in percentage points.
4) Group c: Campervans. Change stated in percentage points.
5) Group h: Taxi and transportation of disabled people. Change stated in percentage points.
6) Group j: Buses less than 6 meters in length, with up to 17 seats, of which at least 10 are forward-facing. Change stated in percentage points.
7) Petrol with a sulphur content of 10 ppm or less.
8) Petrol with a sulphur content between 10 ppm and 50 ppm.
9) Auto diesel with a sulphur content of 10 ppm or less.
10) Auto diesel with a sulphur content between 10 ppm and 50 ppm.
Source: Ministry of Finance.

 

 


3. Allocation of public sector revenue from direct and indirect taxes

Table 5 offers an overall overview of the main categories of direct and indirect taxes, and the parts of the public sector to which the revenue from each of the main categories accrue. Overall revenue from direct and indirect taxes is estimated at about NOK 962 billion for 2007, of which about 87 percent accrues to central government, 11 percent to local government and 2 percent to regional government.

The main part of the tax revenue accruing to local and regional government is in the form of income and wealth tax paid by taxpayers who are individuals. About 33 percent of central government revenue originates from value added tax, excise duties and customs duties. About 22 percent originates from taxpayers who are individuals, whilst about 19 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. About 23 percent of 2007 central government revenue is in the form of direct and indirect taxes from the petroleum sector. Other direct and indirect taxes account for about 3 percent.

Table 5 Accrued direct and indirect taxes allocated by tax creditors.1 2007 estimates. NOK billion

Central government

Local government

Regional government

In total

Individual taxpayers

185,6

96,0

19,6

301,3

Tax on ordinary income

94,0

88,8

19,6

202,4

Surtax

13,9

-

-

13,9

Social security contribution

74,4

-

-

74,4

Wealth tax

3,4

7,2

-

10,6

Businesses (which pay their taxes in arrears)

51,2

1,3

0,2

52,7

Income tax 2

51,0

1,3

0,2

52,5

Wealth tax

0,2

-

-

0,2

Property tax

-

5,1

-

5,1

Employer’s social security contribution

110,2

-

-

110,2

Indirect taxes

277,9

-

-

277,9

Value added tax and investment tax

185,7

-

-

185,7

Excise duties and customs duties

92,2

-

-

92,2

Petroleum

193,6

-

-

193,6

Tax on income

187,2

-

-

187,2

Tax on extraction, etc

6,4

-

-

6,4

Other direct and indirect taxes

21,0

0,9

-

21,9

Social security and pension premiums, other central government and social security accounts 3

18,1

-

-

18,1

Tax on dividends for foreign shareholders

2,1

-

-

2,1

Other direct and indirect taxes 4

0,9

0,9

-

1,8

Total direct and indirect taxes

839,5

103,3

19,8

962,7

Of which direct taxes

561,7

103,3

19,8

684,8

1) Overall figures are in accordance with the definitions applied in the National Accounts, but the classification into tax types deviates somewhat therefrom.
2) Including tax on shipowning companies encompassed by the taxation scheme for shipowning companies, and power stations.
3) Including, inter alia, the Norwegian Public Service Pension Fund.
4) Including certain revenue items classified as tax revenue in the National Accounts, but not entered as tax revenue in the Fiscal Budget.
Source: Ministry of Finance.