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Transcript of 1 The Resource Rent and Taxation Lone Semmingsen, Tax Policy Department Norwegian Ministry of...
1
The Resource Rent and Taxation
Lone Semmingsen, Tax Policy DepartmentNorwegian Ministry of Finance9 April 2010
Ministry of Finance
2
Taxing Natural Resources - Key Aspects
Extraordinary profits Immobile resources A good tax base!
• Profit based tax rules• Stability Predictability Simplicity Efficient tax administration
Ministry of Finance
3
Design of the Norwegian System
Super-profit: Potential for increased tax take
Extra allowance for ordinary returns Should not distort investment incentives
Ordinary income: • 28% on net income as in other industries • Neutrality between industries• Tax on ordinary returns and super-profit
Ministry of Finance
4
Petroleum Taxation
• Production from 1971• Resource rent tax
introduced 1975• Tax rate 50 %, total
marginal tax rate 78 %• profit based• CO2 tax and NOX tax
(negative external effects)
• Royalty phased out from 2000
Ministry of Finance
5
Total Government Take from the Petroleum Sector
-50
0
50
100
150
200
250
300
350
400
450
1971 1976 1981 1986 1991 1996 2001 2006
Billio
n N
OK
2010
Val
ue
0
20
40
60
80
100
120
USD
201
0 Va
lue
Taxes Environmental taxes SDFI Royalty and area fee StatoilHydro dividend Oil Price
Ministry of Finance
6
Petroleum Production on the NCS
0
50
100
150
200
250
300
Million S
m3 o
il e
quiv
ale
nts
0
1
2
3
4
5
Million b
arr
els
o.e
. per
dayGas
Oil
Ministry of Finance
7
Hydro Power Taxation
• Production from about 1900• Resource rent tax introduced
1997• RRT tax rate 30 %, total
marginal tax rate 58%• The RRT is neutral with
regard to investments• Property tax 0,7 %
(municipalities)• License fee and entitlement
to buy max 10 % of power generated (state, county and municipalities)
Ministry of Finance
8
Hydro Power - Resource Rent Tax 1997-2008
0
1000
2000
3000
4000
5000
6000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Mil
l. N
OK
Ministry of Finance
99
Norwegian Economic Structure 2009
Share of investments
Petroleum (27%)
Other
Share of exports
Petroleum (46%)
Other
Share of GDP
Petroleum (22%)
Other
Share of state revenues
Petroleum (28%)
Other
Ministry of Finance
10
State Direct Financial Interest (SDFI)• The SDFI is an arrangement where the state keeps an
interest in a number of oil and gas fields.• Each interest is decided when licenses are awarded, and
the size of state interest varies between fields.• The state pays its share of investments and costs and
receives a corresponding share of the gross income from the license.
• When Statoil was listed and partially privatised in 2001, the administration of the SDFI portfolio was transferred to a new state-owned trust company, Petoro.
• Petoro is funded over the state budget and does not receive any of the income from the SDFI.
Ministry of Finance
11
The Government Pension Fund – Global
0
500
1000
1500
2000
2500
300019
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
09
Bill
ion N
OK
0 %
25 %
50 %
75 %
100 %
125 %
150 %
175 %
Per
cen
t of
GD
P M
ain
land
Capital 31. of dec. (left scale)
Per cent of mainland GDP (right scale)
Ministry of Finance
12
Tax basis - Petroleum on company basis – ring fenced against mainland
Companies without taxable income Carry forward with interest - (risk free + 0,5%)*(1-0,28) Tax refund (pay out) of exploration costs Final losses can be sold or tax reimbursed from the state
Sales income (norm prices)- Operating costs- Capital depreciation (16,7 pct. over 6 years)- Financial costs- (Deficits from previous years)= Ordinary tax base liable to 28 pct. tax- Uplift (investment based extra depreciation, 7,5 pct. 4 years) - (Excess uplift from previous years)= Tax base liable to 50 pct. tax
Ministry of Finance
13
Tax basis – Hydropower
Negative resource rent will be entitled to a tax refund (pay out)
Sales income (market prices)- Operating costs- Concession fees- Property tax- Depreciation (linear: installations 1,5% equipment 2,5%)- Uplift (tax values * risk free rate)= Tax base liable to 30 pct. tax
Ministry of Finance
14
Petroleum Tax – Adapting to Profitability
-1000
0
1000
2000
3000
4000
5000
6000
7000
Unprofitable Fairly profitable High profitability
Mill
ion
kr
After petroleum tax After ordinary tax
Exploration project – Value for companies after tax
Ministry of Finance
15
Hydropower production
Revenues to local/regional government (2006)• Concessionary duties (2006) 640 mill. NOK• Concession power (2006) 2 600 mill. NOK• Property tax 0,7% (2006) 1 900 mill. NOK• Natural resource tax 1 600 mill. NOK• Local/regional ownership 45% of productionSource: Revidert nasjonalbudsjett 2008
State revenues (2008)• Ordinary tax 28% 5 000 mill. NOK• Resource rent tax 30% 5 623 mill. NOK• Tax deductions -2 809 mill. NOK• State ownership – Statkraft >40% of productionSource: SSB