Resource rent tax on aquaculture

Norway has some of the best climatic conditions for salmon farming in the world. The aquaculture industry utilises fjords and sea areas that belong to society. Aquaculture licences are issued by the state and provide a protected right to operate indefinitely. Statistics Norway has identified substantial resource rent in this industry over several years. Resource rent in aquaculture has risen strongly since 2012 and for the period 2016 to 2018 it has totalled just over NOK 20 billion, which is on a par with hydropower. The resource rent for 2021 is estimated at NOK 11.8 billion. It is therefore reasonable for society to receive a share of the extraordinary return generated through the exploitation of these resources.

The proposal covers the production of salmon, trout and rainbow trout and involves the taxation of resource rent at an effective rate of 40 per cent. The rules are formulated in such a way that only the largest operators will pay resource rent tax. This is done by granting a tax-free allowance of between 4,000 and 5,000 tonnes.

A key element of the proposal is that the local communities which make natural resources available should be guaranteed a share of the resource rent. The tax revenues are estimated to be between NOK 3.65 and 3.8 billion and the Government is planning for half of this to go to the municipal sector.

What is the content of the proposal?

The resource rent tax is designed as a cash flow tax. This means that revenues and investments are taxed on an ongoing basis in the year in which they are earned/incurred.

Revenues from salmon are established on the basis of a norm price. The norm price is based on the commodity prices for salmon. Revenues from trout and rainbow trout are based on the actual sale prices.

Fixed assets acquired before the introduction of the resource rent tax can be deducted through the depreciation of their remaining tax values. No deduction is provided for remuneration for the licence for fish for consumption or the costs incurred in connection with the acquisition. The Ministry proposes a tax-free allowance of between 4,000 and 5,000 tonnes, equivalent to NOK 54 and 67.5 million respectively. Around 65–70 per cent of aquaculture companies have collected biomass under licence of less than 4,000 and 5,000 tonnes of maximum permitted biomass respectively.¹ The tax-free allowance is considered a flat-rate deduction for historical purchases of licences for fish for consumption. The tax-free allowance is granted at corporate group level. Tax-free allowances are granted in the form of estimated average profit per tonne of biomass and can be deducted from positive resource rent income.

Corporate tax is calculated before resource rent tax on aquaculture, and resource rent-related corporate tax is deducted from the basis for resource rent tax (as for petroleum and hydropower). An effective resource rent tax rate of 40 per cent therefore means that the formal resource rent tax rate is set at 51.3 per cent. Including corporate tax, the total effective marginal tax is 62 per cent.

Negative calculated resource rent income can be carried forward with interest and deducted from positive calculated resource rent income in subsequent years.

Who is affected by the proposal?

The resource rent tax covers returns from commercial licences for fish for consumption relating to the production of salmon, trout and rainbow trout, irrespective of how the licence holder is organised.

Development licences are not covered by the resource rent tax. Development licences that are converted to ordinary licences for fish for consumption will be covered by the resource rent tax from the date of conversion.

The resource rent tax applies to all licences within the geographical scope of the Aquaculture Act (out to the continental shelf).

Anticipated revenues from the resource rent tax

The proceeds are estimated to be NOK 3.65 billion or NOK 3.8 billion in 2023, depending on the level of the tax-free allowance.

Municipal sector’s share of revenues

Half of the revenues will accrue to the municipal sector. In total, the municipal sector’s revenues for the 2023 income year are estimated to be NOK 1.825–1.9 billion. These revenues will be booked in 2024.

• The excise duty on production will be made deductible in the stipulated resource rent tax and increased from around NOK 500 million to around NOK 750 million. The excise duty will be allocated according to the keys in the Aquaculture Fund.
• A new natural resource tax will be allocated according to the same keys in the Aquaculture Fund, but will be included in the municipal sector’s revenue system. The natural resource tax will be deductible in the stipulated resource rent tax and provide the municipal sector with around NOK 750 million.
• An additional allocation to the municipal sector will ensure that the municipal sector receives the stipulated share of the public sector’s revenues from the resource rent tax. The size of the allocation will depend on the level of the tax-free allowance and is estimated at between NOK 325 million and NOK 400 million for the 2023 fiscal year.

The excise duty on production and the natural resource tax will ensure stable income, even in years with low resource rent. At the same time, the additional allocation means that the municipal sector will benefit from high resource rent this year.

¹Individual licences are limited in terms of the maximum permitted biomass, which means that the fish farmer can never have standing biomass in the sea that exceeds the value indicated on the licence. The standing biomass will therefore be lower than the permitted biomass. Salmon grows to slaughter weight within 12 to 18 months.