The Government’s tax programme for 2014

The Government’s proposal for 2014 marks a new direction for Norway's tax policy. The former government, Stoltenberg II, increased the tax level, whereas this Government is reducing taxes. The Government is giving priority to tax cuts promoting economic growth and contributing to long-term securement of the welfare system. Overall, the tax relief amounts to NOK 8 billion accrued and NOK 4.8 billion booked in 2014.

Tax on net income
The Stoltenberg II Government proposed a reduction in the tax rate on net income for corporations from 28 pct. to 27 pct. The tax rate on net income for personal taxpayers was maintained at 28 pct. Differences in these tax rates encourage tax planning and should be avoided. The Government is thus proposing to reduce the tax rate on net income to 27 pct. for personal taxpayers as well as for corporations. This will effectively reduce the general tax level in Norway. It also implies that the former Government’s poorly targeted and complicated tax relief proposals regarding the self- employed can be withdrawn.

Tax on net wealth
The Government is proposing a reduction in the tax rate on net wealth by 0.1 percentage point, to 1 pct. Reductions in the tax rate on wealth encourage savings and will in combination with a lower tax rate on ordinary income promote economic growth.

In the longer term part of the immediate revenue loss, roughly estimated to 10 - 30 pct., will thus be restored.

The Stoltenberg II Government’s proposals with regard to base broadening and the increase in the basic allowance in the net wealth tax to NOK 1 million are maintained.

Inheritance tax
The inheritance tax is abolished. This facilitates the transfer of family businesses, dwellings and holiday homes from one generation to another. It also implies a significant simplification for taxpayers. The administrative burden for the Norwegian Tax Administration will be reduced. The inheritance tax bases, which are also used as a base for the capital gains tax, will be replaced by new tax bases. These will in most cases equal the deceased’s or donor’s entry values. However, if the deceased could have sold his dwelling, holiday home or farm free of tax, the recipient is also granted a capital gains tax exemption at the inheritance settlement. In the case that the recipient does not sell the property, any capital gains tax is only due on the gains earned while the property is kept by the recipient.

Business taxation

Limitation of deductions for interest expenses to related parties
The Government maintains the main features of the former government’s proposal on new rules limiting tax deductions in the corporate tax base for interest expenses to related parties. According to the proposal, deductions for intra-group interest expenses will be disallowed if total net interest expenses exceed 30 pct. of an adjusted taxable income. Only net intra-group interest expenses will be disallowed. However, interest paid to unrelated lenders is included when calculating the interest deduction limit.

The Government adjusts the proposal somewhat, proposing to increase the threshold for the limitation to be applicable from interest expenses of NOK 3 million to NOK 5 million.

Initial depreciation rules
The Government also maintains the former Government’s proposal regarding the introduction of 10 pct. initial depreciation for machinery and other operating equipment in asset group d. The Government will also initiate an evaluation of the depreciation rules and how they relate to real value loss on operating equipment.

Tax incentive scheme for R&D (Skattefunn)
The Government’s proposal includes a further expansion of the Skattefunn R&D tax incentive scheme relative to the former government’s proposal. The cap on internal R&D is increased from NOK 5.5 million to NOK 8 million. The overall cap on internal and outsourced R&D is maintained at NOK 22 million as with the former government’s proposal. The 2014 amendments imply a broad extension of the Skattefunn R&D tax incentive scheme that will benefit all users of the scheme.

Other tax changes
The Government is proposing some other tax changes, inter alia:

  • The social security contributions will be increased by 0.4 percentage points. This increase must be seen in connection with the reduced tax rate on net income. The special tax credit for pension income is adjusted to the other tax changes in such a manner that the minimum pension remains tax free.
  • In line with the Government’s political platform the home investment savings scheme for people below the age of 34 years (BSU) is expanded. The scheme is aimed at helping young people buying a home. The Government is proposing to increase the maximum annual deposit entitling a tax credit to NOK 25 000. The overall ceiling for tax credit entitling deposits is increased to NOK 200 000.
  • The Government maintains the proposed reduction in judicial registration fees on real estate, mortgage bonds etc. as well as in other sectoral taxes and overpriced fees. The price to the public should not exceed the government’s cost of providing these services.
  • The Government maintains the former government’s proposals on increased tax on greenhouse gases.
  • The Government cancels the former government’s proposed increase in the electricity tax.

Estimated revenue effects of the tax programme for 2014. Negative figures represent tax reductions. The estimates have been calculated relative to a benchmark system for 2014. NOK million

 

2014

 

    Accrued

    Booked

Income tax for individuals

-3,345 

-2,688 

Reduce the general tax rate to 27 pct.1

-10,540

-8,430

Increase employee’s social security contribution by 0.4 percentage point

6,155

4,925

Increase the rate of the basic allowance against wage income to 43 pct. and to 27 pct. against pension income

-679

-543

Reduce maximum amount of the special tax credit for pensioners to 30000 NOK

765

610

Abolish tax class 2 for married couples

1,045

836

Tax the transitional benefit for sole providers as wage income2

52

33

Simplify the taxation of electronic communications

0

0

Tighten tax rules for long commutes

15

12

Expand the home investment savings scheme for people below the age of 34 years (BSU)

-270

-220

Increase the threshold triggering a duty to report wages

-18

-14

Allow tax relief to all trade union subscriptions, etc.3

0

-3

Increase the mark-up in the benchmark rate for the taxation of subsidised employee loans by 0.75 percentage point to 1.25 percentage points

30

15

Adjust the personal allowance in line with wage increases4

-62

-50

Adjust the upper limit of the basic allowance against pension income in line with wage increases4

-56

-45

Adjust the special allowance for sole providers in line with wage increases4

-21

-17

Maintain some other rates, limits and allowances unchanged in nominal terms, etc

239

198

Tax on net wealth and inheritance

   -3,570 

-1,940 

Reduce the net wealth tax rate to 1 pct. Increase the taxable values of secondary homes, commercial property and holiday homes. Increase the basic allowance to NOK 1 million

-1,595

-1,270

Abolish the inheritance tax

-1,975

-670

                  

Business taxation

-1,211

-300

Reduce the corporation tax rate for mainland businesses to 27 pct  

-2,600

0

Increase the special tax on oil companies5

-

-

Increase the economic rent tax on hydropower plants

150

0

Restrict the deductibility of debt interest payable to related parties

       2,450

0

Introduce initial depreciation for operating equipment in asset group d6

-960

-300

Expand the Skattefunn R&D tax incentive scheme

-250

0

Expand the conditional tax exemption for compulsory acquisition of agricultural property upon reinvestment

-1

0

     

Indirect taxes

480 

        415 

Increase taxes on greenhouse gases to NOK 330 per tonne of CO2 equivalent6

700

640

Increase the CO2 tax on fishing, whaling and sealing7

30

30

Adjust the motor vehicle registration tax

0

0

Reduce the motor vehicle re-registration tax

-250

-250

Abolish the re-registration tax and expand the environmental component of the annual weight-based tax for large motor vehicles

0

0

     

Sectoral taxes and overpriced fees

-333

-318

Reduce judicial registration fees to a cost-based level

-325

-310

Sectoral taxes and other fees8

-8

-8

Aggregate new tax changes in 2014

-7,979

-4,831

New changes with effect in 20133

-3

 

Former changes

-12

58

Changes in National Budget 2013

0

52

Changes in Revised Budget 2013

-12

6

Aggregate revenue

-7,994

-4,773

1) 23.5 per cent in Finnmark and Nord-Troms.
2) The revenue estimate takes into account the increased gross benefit for new recipients.
3) The proposal has effect from 2013.
4) Adjustment in line with wage increase represents overcompensation.
5) The income from the petroleum sector is not included in the table because it is included in the Government Pension Fund Global. The net loss of revenues from oil companies as the result of increased special tax and reduced corporation tax is estimated at NOK 350 million accrued and NOK 175 million booked in 2014. Transfers to the Government Pension Fund Global are reduced correspondingly.
6) The long-term effect of introducing initial depreciation is estimated at -400 million NOK.
7) The revenue estimate also includes abolition of the tax exemptions for protected vessels, museum railways, technical facilities and cultural relics within the museum sector. The revenue estimate takes into account compensations on the expense side in the total amount of about NOK 70 million.
8) This includes reduce fees for the Civil Aviation Authority Norway and for the Norwegian Railway Authority and increased annual fee for foundations.

Source: Ministry of Finance.

 

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