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Norway: Selected Issues

Author(s):
International Monetary Fund. European Dept.
Published Date:
August 2014
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Tax Reform Options1

Norway’s tax system is changing. The new government is committed to reducing the overall tax level, making the tax code more job-friendly, and adopting the business taxation to international developments. This paper argues that the ongoing tax reform is an opportunity for a comprehensive improvement of the tax system. A simpler and more neutral tax system could help to promote efficiency and economic growth. Less preferential tax treatment for residential and commercial real estate would promote productive investment and ease the transition to a non-oil-and-gas growth model. Fewer exemptions and preferences could create fiscal space for a reduction in overall tax rates, including the corporate income tax.

A. Introduction

1. The new Norwegian government is committed to reducing the overall tax level. The coalition government, in power since October 2013, has made several commitments, mostly non-quantified, regarding specific taxes. These include raising thresholds for higher individual income tax rates, reducing wealth tax rates and exemption amounts, and expanding tax schemes to encourage home ownership and retirement savings. The government’s revised budget for 2014 already included some minor tax reductions valued at ¼ percent of GDP: (i) a reduction of the personal income tax rate from 28 percent to 27 percent, to align it with the corporate income tax rate; (ii) a reduction in the net wealth tax rate by 0.1 percentage point to 1 percent; and (iii) elimination of the inheritance tax. Additional corporate tax changes are planned, to be informed by a tax commission’s report. This paper documents key features of the present Norwegian tax system, takes stock of recent reforms, and compares these proposals to best international practice.

Box 1.Measuring the Tax Level in Norway

The offshore oil and gas industry in Norway accounts for almost a quarter of total GDP, half of total exports, and a third of state revenue. The Government Pension Fund Global (GPFG, Norway’s sovereign wealth fund) receives the government’s oil and gas revenue. Norway’s fiscal rule, established in 2001, is designed to smooth spending from the oil wealth and to insulate the economy from Dutch disease. The fiscal rule allows for a transfer of about 4 percent of the fund’s value to the yearly government budget, taking into account the cyclical position of the economy.

The offshore industry in Norway complicates the cross-country tax system comparison, as there are three ways of presenting various tax ratios. The first approach is the ratio of total taxes, and its subcomponents, in percent of total GDP. This is the most direct method that facilitates an easy cross-country assessment and is therefore used in this analysis. Alternatively, the calculations could express tax ratios in percent of Norway’s mainland GDP, which sums up all domestic economic activity except for the extraction of crude oil and natural gas (including related services), pipeline, and deep-sea transport. This approach would reflect the relatively successful separation of offshore oil and gas activities from the rest of the economy and the state budget. Thus the second approach is the ratio of taxes on mainland economy in percent of mainland GDP. Finally, the third approach also presents the tax burden in percent of mainland GDP, but with numerator equal to the sum of taxes on mainland economy and the annual fiscal transfer from the GPFG to the federal budget. However, the latter two approaches do not allow for a straightforward cross-country comparison of Norway’s tax system due to data limitations.

Since the introduction of the fiscal rule in 2001, total taxes in percent of total GDP and taxes on mainland economy in percent of mainland GDP have remained relatively stable at around 43 and 45 percent (figure). The transfers from the GPFG to the budget were more volatile, and the third ratio has moved between 45 and 51 percent. The ratio of total taxes to total GDP ranks Norway slightly above the EU15 average, whereas the other two approaches suggest a much higher tax burden.

Different Approaches to Measuring the Tax Level in Norway1

Sources: Norwegian authorities and IMF staff calculations.

1 Total taxes in percent of total GDP, except for Norway

2/, which depicts taxes on mainland economy in percent of mainland GDP and Norway

3/, which depicts taxes on mainland economy and transfer from the GPFG in percent of mainland GDP.

B. Norwegian Tax Primer

2. The tax level in Norway is high (Box 1 and Figure 1). Total tax revenue fluctuated within a band of 42.0 and 43.5 percent of GDP between 2001 and 2013, well above the OECD average of 34.4 percent and the EU15 average of 39.0 percent of GDP. This level of taxation reflects high public spending and extensive welfare arrangements. Indeed, in other European modern welfare states, including the neighboring Nordic countries as well as Belgium and France, the tax burden is even more substantial than in Norway by up to 5.8 percentage points of GDP. In line with developments in other countries, the tax ratio declined slightly in the recent rates compared with the 10-year average, and the new government is committed to further tax reduction.

Figure 1.Norwegian Tax Primer1

Sources: Norwegian authorities, OECD, PricewaterhouseCoopers, and IMF staff estimates.

1 OECD and EU15 are simple averages for OECD and EU15 countries, respectively.

2 Income taxes include taxes on income and net wealth plus capital taxes.

3 Higher income is defined as 167 percent of average earnings.

4 2014 rates for Norway.

3. The tax mix is skewed toward direct taxes. Direct taxes, defined as all taxes that can be adjusted to the individual characteristics of the taxpayer (Atkinson, 1977), yielded 73.6 percent of total tax revenue in 2012, above the OECD and EU15 averages. The corresponding direct-to-indirect tax ratio stood at 2.8 in 2012, considerably higher than in other OECD and EU15 countries. To a large extent, the high revenue from direct taxes is due to special tax on petroleum income, which is recorded as corporate tax revenue. In 2012, the corporate tax yielded 10.5 percent of GDP, more than three times the EU15 average.

4. Personal income is taxed twice, at relatively high rates. Norway, similarly to other Nordic countries, has a dual income tax system. Ordinary income (labor, pension, and capital income less deductions) is taxed at the same flat rate and labor income above a certain threshold is taxed at the progressive rate. Taxable income includes salaries, dividends, interest, income from real property and other capital, and capital gains from the sales of real property and financial securities. In 2014, the statutory tax rate on the ordinary income is 27 percent.2 Gross labor income, gross pension income, and income from self-employment—the so-called personal income—above NOK 527,400 is subject to progressive surtaxes of 9 and 12 percent, with annual incomes above NOK 857,300 (approximately US$ 142,900) taxed at the top rate of 47.2 percent.3 Compared with other countries, Norway’s average income tax rate4 was the fourth highest in 2013.

5. Wealthier taxpayers pay a higher average income tax rate. In 2013, personal incomes at 167 percent of average earnings were taxed at 27.8 percent. Higher taxation of wealthier taxpayers reflects both the progressiveness of labor income taxation and the fact that the most financial wealth is owned by the richest 10 percent of households.5 As a result, the tax system supplements the benefits system to provide a significant redistribution from the rich to the poor and the makes final distribution of net income is very even. Norway’s post-taxes and transfers income inequality is the one the lowest amongst OECD countries.

Gini Index Before and After Taxes and Transfers, 2010

(Lower bound is the Gini index at disposable income after taxes and transfers and upper bound is the Gini index before taxes and transfers)

Sources: OECD and IMF staff estimates.

6. The tax code has a myriad of tax deductions, various allowances, and tax credits. All expenses related to earning the income are deductible. However, taxpayers may choose to claim a so-called basic allowance instead of claiming for itemized expenses. The basic allowance is limited to 43 percent of wage income and 27 percent of pension income, with upper and lower limits that vary depending on the source of income and the geographic location of the tax payer. In 2014, the maximum basic allowance was set to NOK 84,150 (about US$14,000). On top of the basic allowance, the personal allowance of up to NOK 72,000 (about US$12,000) is given for both personal and corporate income, including pensions and capital income. There are also special allowances pensioners, the disabled, the sick, seamen, fishermen, self-employed within agriculture, and others. Further, credits are available for charitable donations, paid labor union fees, home investment savings for the young (see below), and childcare expenses.

7. Mandatory social security contibutions add to tax burden on labor income. The employee’s contribution is 8.2 percent of gross labor income.6 The employer’s contribution is regionally differentiated and ranges between 0 and 14.1 percent.7 At the top rate for employer’s contribution, social security payments are lower than in other advanced economies. Revenues from social security contributions are also lower as a share of total tax revenue and as a ratio to GDP.

8. In addition to taxing capital income, the capital stock and some capital transfers are also taxed. An annual net wealth tax is levied at both central and municipal government level on the capital stock in excess of NOK 1 million (about US$166,700).8 The central government tax rate is 0.3 percent and the municipal tax rate is 0.7 percent. In addition, some municipalities levy real property taxes at rates ranging from 0.2 to 0.7 percent of the assessed value of real property, depending on the location. In 2010, 70 percent of municipalities levied this tax. Finally, real property transactions are subject to stamp duty of 2.5 percent of the market value of the property. Overall, property taxes account for less than 3 percent of total tax revenue, compare with above 5 percent in OECD countries.

9. The tax code is biased toward owner-occupied housing. Imputed rental income and capital gains on owner-occupied housing are exempt from capital income taxation. The wealth tax on owner-occupied and rental housing in excess of NOK 1 million is levied at much lower effective rate of 0.25 percent for owner-occupied housing and 0.4 percent for rental housing, as only a fraction of their value is included in the tax base.9 Mortgage interest on both owner-occupied and rental housing is fully deductible from capital income. Also, local property taxes are based on outdated property values. In addition, a tax relief scheme is available for young taxpayers under age 34 saving to buy a house; annual savings up to NOK 25,000 are subject to income tax relief at 20 percent of the annual amount saved, with the upper limit of NOK 0.2 million savings in the scheme.

10. Corporate income is taxed at the same flat rate as personal income. Income, dividends, and capital gains are pooled together and taxed the same rate of 27 percent. In addition, petroleum companies licensed to explore and exploit gas and oil resources are taxed an additional 51 percent tax rate on petroleum income (see also Box 1).10 Overall, corporate income tax revenue in Norway is the highest in the OECD, both as a share of GDP and as a share of total tax revenue (Figure 2). However, this is due in large part to the gas and petroleum taxes, which are recorded as corporate tax revenue. Excluding this revenue ranks Norway just below the EU15 average. Nevertheless, the effective corporate income tax rate is about 10 percentage points higher than, on average, in other advanced countries (PwC and the World Bank, 2014), even though the statutory rate is only about 2 percentage points higher than in the EU15 and the OECD.

Figure 2.Corporate Taxation in Norway1

Sources: KPMG, Norwegian authorities, OECD, Paying Taxes 2014, and IMF staff estimates.

1 OECD and EU15 are simple averages for OECD and EU15 countries, respectively.

2 Excluding petroleum income taxation. End-2011 data.

11. Indirect taxes, mostly VAT, bring in about a fourth of total tax revenue but the revenue efficiency is low. In 2012, taxes on goods and services stood at 11.1 percent of GDP, broadly in line with the OECD and EU15 averages. The value-added tax (VAT) revenue accounted for 72 percent of indirect taxes. The statutory VAT rate is high at 25 percent—only Denmark and Sweden have equally high standard VAT rates. However, the VAT revenue efficiency is low. In 2009, the revenue efficiency ratio (c-efficiency),11 stood at 54 percent, below the ratio of most other advanced countries (OECD, 2012a). Among the reasons for this relatively low performance are reduced VAT rates on food (15 percent); passenger transport, accommodation, and similar services (8 percent); and a zero rate on books, newspapers, and electric cars (Box 2). Many other services are exempt from the VAT, including financial services, health care, education, and some cultural and sport events.

12. Tax expenditures add up to about 6 percent of GDP.12 This is significantly above, for example, Denmark (2.2 percent of GDP; Nordic Working Group, 2010) or Germany (0.7 percent of GDP; OECD, 2010) but on par with Sweden (5.7 percent of GDP, OECD, 2010). The most important tax expenditures relate to lack of taxation of imputed income from owner-occupied housing and too low cadastral values of real estate properties in the net wealth tax.13 Overall, housing-related exemptions results in revenue loss of about 2.5 percent of GDP (34 percent of all tax expenditures). VAT-related tax expenditures, due to lower or zero-rate and exemptions from the VAT system, are the second largest category, with an estimated revenue loss of about 1.5 percent of GDP. Other significant tax expenditures are related to the geographically differentiated employer’s social security contribution and various personal income taxation deductions and allowances.

Box 2.Tax Incentives for Electric Cars

Taxation of electric vehicles provides an example of how the tax code leads to distortions of incentives and unexpected consequences. Tax incentives for the purchase and ownership of electric cars are very generous in Norway. Electric cars are exempt from the vehicle registration tax and value added tax (VAT), making electric car purchase price competitive with conventional cars. In addition, the annual road tax is only a small fraction of the tax paid for petrol and diesel vehicles (about 15 percent); municipal parking, public charging stations, ferry rides, and road tolls are free; and electric cars can drive in the bus lanes and highway express lanes. Electric company cars are exempt from taxation for company car benefit tax. These tax incentives are in effect until 2018 or until Norway—a country of about 5 million people—reaches its 50,000 electric vehicle target.

The registration tax and VAT can more than double the retail price of cars in Norway. For conventionally-fuelled cars, the vehicle registration tax can reach about 40 percent of the net retail price, depending on the vehicle’s weight, engine power, carbon dioxide (CO2) emissions, and nitrogen oxides (NOX) emissions. However, electric vehicles only pay a small fee of approximately US$400 to the scrapping scheme. The VAT rate is 25 percent for petrol and diesel car and 0 percent for electric cars.

Examples of New Car Prices, 2014

(In thousands of US dollars)

Sources: Norwegian authorities and IMF staff estimates. Prices are converted to US dollars assuming an exchange rate of 6 NOK/US$.

Generous public subsidies and the ability to drive for free in less-congested bus lanes have fueled the sales of zero-emission vehicles at all price ranges. The number of electric cars nearly doubled in 2013 and reached almost 25,000 in early 2014, with electric cars accounting for up to 20 percent of total new car sales recently. Electric car ownership is the largest per capita in the world, with electric cars accounting for about 1 percent of all registered cars. For a compact electric car, such as the best selling Nissan Leaf, the tax breaks and other benefits are estimated to be worth up to US$ 8,200 per car annually (Doyle and Adomaitis, 2013). However, there are no price or engine size caps, and popularity of high-end electric cars is soaring. Tesla Model S, a luxury electric sedan costing about US$ 87,000, is the second top-selling electric car with a market share of 15 percent. With a claimed top speed of 125 miles per hour, acceleration to 60 miles per hour in 5.4 seconds, and a driving range of around 300 miles, the Model S would retail for about US$200,000 if it had a conventional gas engine. In this case, the purchase tax breaks alone are worth more than US$100,000. Overall, the increased sales of electric cars cost the central government up to NOK 4 billion (approximately US$ 0.67 billion) in reduced tax revenue and Norway accounts for 45 percent of Tesla’s international sales.

C. Ongoing Tax Reforms—The 2014 Budget and Beyond

13. A new government took office in October, 2013. The government’s economic policy platform emphasizes lower taxes and duties, more infrastructure investment, greater private ownership, and measures to improve productivity and competitiveness. The revised 2014 budget was the new government’s first opportunity to implement its tax program. This section reviews the changes to the tax code in the revised 2014 budget and provisions carried over from the previous government.

14. Personal and corporate income tax rates were reduced from 28 to 27 percent. The Norwegian corporate tax rate of 28 percent had remained unchanged since 1992 while the average corporate tax rate in the EU15 countries had fallen from 38.9 percent to 26.7 percent in 2013. In its initial 2014 budget, the previous government cut the statutory corporate tax rate by 1 percentage point. The current administration cut the tax rate on personal incomes to the same level while increasing up the surtax thresholds by 3.5 percent, in line with expected wage growth for 2014. Various personal allowances and upper limits of the basic allowances in wage and pension income were increased in a similar manner.

15. Personal income tax rate cuts were accompanied by an increase in social security contributions but overall, effective marginal tax rates fell. Employees’ social security contributions, including contributions from pensions and self-employment, were increased by 0.4 percentage point.14 Overall, changes to personal income taxation reduced the maximum effective marginal tax rates by about 0.5 percentage points for labor and pension income and 1.5 percentage points for dividends and distributions.

16. Corporate income tax rate cuts were complemented with restrictions on deductibility of interest expenses and increased depreciation allowance. In order to keep multinational enterprises away from shifting taxable profit from Norway to lower-tax countries, deductions for of intra-group debt interest expenses were limited to 30 percent of taxable ordinary income.15 Previously, all interest expenses were fully tax deductible. The 2014 budget also introduced an additional depreciation allowance for certain investments and marginally strengthened the business R&D tax incentives.16

17. An experts’ tax commission is considering further changes to business taxation. The commission was appointed in March 2013 to examine whether the corporate tax regime in Norway is well adapted to international developments and whether the difference in the tax treatment of debt and equity financing creates room for tax avoidance. The commission is also examining the alignment of tax and real depreciation rates. The commission’s report is expected by mid-October 2014.

18. The new government made considerable changes to wealth taxation. The tax rate on net wealth was reduced by 0.1 percentage point to 1 percent. The threshold for tax-free net wealth was increased by 15 percent to NOK 1 million and the taxable values of holiday homes, second homes, and commercial properties were increased by 10 percentage points.17 The inheritance and gift tax was abolished but revenue losses are minimal because of the allowances that offer tax avoidance options (OECD, 2012b).

19. Tax incentives for home ownership were expanded. Thresholds for annual and total tax reliefs for taxpayers under age 34 saving to buy a house were increased by generous 25 and 33.3 percent, respectively. Only the maximum allowance for charitable donations was increased by a higher fraction of 40 percent. Further, capital gains tax exemption was granted to recipients of real estate inheritance who sold the inherited property, be it an owner-occupied house or other real estate. Finally, judicial registration fees on real estate and mortgage bonds were reduced.

20. A good tax system should be simple, transparent, and efficient with no arbitrary tax differentiation across taxpayers and forms of economic activity. Norway’s tax system has many good characteristics—most notably the equal treatment of income from employment, capital, and corporate sources (subject to surtaxes on higher labor income). However, the system could be more efficient while continuing to raise roughly the same amount of revenue and redistributing resources to roughly the same degree. The ongoing tax reform should thus be seen as an opportunity for a comprehensive improvement of the tax system and removing the distortions created by tax preferences, especially for housing. The reminder of this section briefly discusses international best tax design practices drawing on Mirrlees and others (2011), and the implications for the recommended directions for Norwegian tax reform.

21. Shifting the tax burden from more distortive income taxes toward indirect taxes should enhance growth and efficiency. A revenue-neutral increase in indirect taxes compensated with a reduction in income taxes and social security contributions has a positive effect on the long-run economic activity. The ‘tax and growth ranking’ of Arnold and others (2011) suggests that property taxes, in particular recurrent taxes on immovable property, are the least distortive taxes in terms of long-term economic growth, followed by consumption and other property taxes, personal income taxes, and corporate income taxes. Their empirical results suggest that on average, a 1 percent shift of tax revenues from income taxes to indirect taxes would increase GDP per capita in OECD countries by up to 1 percentage point in the long run.

22. Recurrent taxes on immovable property are comparatively good for economic growth, unlike other property taxes. In most advanced countries, taxation of real estate—in particular owner-occupied housing—is full of non-neutralities which result in a misallocation of capital towards housing, away from productive investment. This implies that increasing recurrent taxes on immovable property will shift some investment out of tax-subsidized housing into un-subsidized business activities that are more productive and increase the rate of economic growth. In Norway, this shift towards productive investment is critical for the successful transition to an economic growth model less dependent on supplying the oil and gas sector. At the same time, other property taxes—taxes on financial and capital transactions, inheritance, and net wealth—can distort the allocation of capital and are likely to be more harmful to growth than recurrent taxes on immovable property. For example, taxes on property transactions can discourage real estate transactions and thus the shift of capital towards more productive investment (Arnold and others, 2011). These taxes also have a negative impact on labor mobility given the high transaction costs incurred by changing property.

23. Income from all sources should be taxed on a flat rate schedule. Current research suggests that applying different tax rates to different income sources complicates the system, discriminates among taxpayers and forms of economic activity, distorts economic activity towards lightly taxed forms, and facilitates tax avoidance. Personal income taxation should be kept simple: progressive with two or three rates; transparent, and coherent, with a single allowance and an integrated benefit for low-income taxpayers. The single rate schedule should be applied to income after allowing deductions for the costs incurred in generating income, such as work-related expenses and production inputs (Mirrlees and others, 2011). The personal tax and benefit systems need to be as simple and integrated as possible to provide strong incentives to work and avoid the ‘poverty trap.’ In Norway, the focus should be on simplifying the myriad of allowances, deductions, and exemption and on reducing the extent to which the income tax system subsidizes housing investment.

24. Capital income taxation should be neutral between different types of assets. An optimal taxation of savings income should have a standard income tax schedule applied to capital income after an allowance for the normal rate of return on savings, with lower personal tax rates on income from company shares to reflect the already paid corporate tax. Different types of assets should be treated equally. In Norway, this principle strengthens the need for reducing the implicit tax subsidy to owner-occupied housing by reintroducing taxation of imputed rest or—as the second best solution—limiting the mortgage interest deductibility. This could free up resources of about 1 percent of GDP, currently tied up in tax expenditures related to the favorable taxation of housing.

25. The VAT should be broad-based and levied at a single rate. A broad-based, single-rate VAT taxation is an effective and cost-efficient form of growth-friendly revenue collection, which has less negative impact on households’ and firms’ choices of saving, investment, and employment than income and wealth taxes. However, reduced rates, zero rates, and exemptions pose a great challenge to the tax compliance and administration. A multiple rate structure also results in arbitrary distortions between different kinds of consumption and inequitable treatment of consumers with different tastes.

26. Broadening the base of VAT taxes by gradually reducing preferential treatments simplifies the tax system and improves its effectiveness. Reduced rates, zero rates, and exemptions violate the guidelines of optimal tax policy. Reduced rates on basic goods, such as food, are a poor mechanism to achieve redistribution goals. While the motive behind these exemptions is lowering the tax burden on the low-income individuals, Atkinson and Stiglitz (1976) show that differential consumption taxation is not optimal and that recommend progressive income taxation should be used for achieving redistribution objectives. Mirrlees and others (2011) calculate that in the United Kingdom, applying the standard VAT rate to all goods and services (except for housing and exports) while increasing means-tested benefits by 15 percent would leave the poorest 30 percent of the population better off. In this context, the Norwegian authorities should focus on making the VAT tax base more robust by phasing out non-standard rates and exemptions (e.g., equalizing VAT taxes on services and removing exemptions for high-value electric cars).

The experience of New Zealand shows that many exemptions are unnecessary and it is possible to levy VAT at a uniform rate on a much wider range of goods and services (Mirrlees and others, 2011).

D. Conclusions

27. Tax policy affects socioeconomic activity in non-trivial ways. On one hand, the tax level reflects societal choices as to the desired level of public spending and welfare arrangements. In Norway, as in other modern welfare states, the tax level is high in order to provide financing for high public spending and income redistribution objectives. On the other hand, the tax structure—the tax mix and the tax rates and bases of individual taxes—affects economic incentives, income inequality, efficiency, and economic growth.

28. The forthcoming tax reform in Norway is a critical opportunity to support the transition to an economic growth model less dependent on supplying the oil and gas sector. The system should be considerably more neutral with regards to capital taxation. A reduction in the extent to which the personal income tax system promotes housing rather than productive investment would help productivity and remove disincentives toward investment in those parts of the productive economy that will need to replace oil and gas as a source of growth. More generally, a simpler tax system with fewer exemptions and preferences and broader tax bases could create fiscal space for a reduction in overall tax rates, including the corporate income tax.

References

Prepared by Sylwia Nowak (EUR).

All expenses incurred for the purpose of earning income are deductible. Taxpayers may choose to claim a minimum deduction of NOK 84,150 (about US$14,000) rather than claiming itemized expenses.

Taxpayers in the extreme northeastern parts of Norway (Finnmark and Nord-Troms regions) enjoy reduced tax rates of 23.5, 30.5, and 42.5 percent.

The average income tax rate for an average single worker without children was 21.4 percent in 2013. Personal incomes at 167 percent of average earnings were taxed 27.8 percent.

The OECD (2012b) estimates that the richest 10 percent of Norwegian households pay 70 percent of all tax revenue from capital income.

Income from self-employment other than fishing, hunting, and child care is subject to employee’s contribution of 11.4 percent of gross labor income.

New European Economic Area regulations on regional state aid, effective from July 1, 2014, may necessitate changes to the system of regionally differentiated employer’s social security contributions.

The threshold is for single taxpayers. For married couples who are assessed together for joint assets, the threshold is NOK 2 million (about US$ 333,300).

The wealth tax rate is 1 percent on the capital stock in excess of NOK 1 million. However, only 25 percent of the value of owner-occupied housing is included in the tax base, which implies an effective tax rate of 0.25 percent. Rental housing also gets a favorable treatment: only 40 percent of the property value is included in the tax base, which implies an effective tax rate of 0.4 percent.

Detailed treatment of the oil and gas taxation is largely outside this analysis.

The VAT revenue ratio is defined as the ratio of VAT revenue to final consumption, divided by the standard tax rate. It measures the difference between the VAT revenue actually collected and potentially possible if VAT was applied at the standard rate to the entire tax base.

The sum of general government forgone revenue in the form of exemptions, allowances, credits, preferential tax rates, and so on. The actual number is higher, as there are several tax expenditures that are not calculated due to technical difficulties. All existing tax expenditures are reported in the National Budget.

The cadastral value refers to the valuation of a property in a public register used for taxation purposes.

An existing tax credit for pension income was adjusted so that the minimum pension remained tax free.

The interest expense limit is triggered if the company claims interest expenses with respect to borrowings from both related and unrelated parties of more than NOK 5 million (about US$ 0.83 million). If the interest expense exceeds this threshold amount, the limitation applies to all intra-group interest expenditure (i.e., the entire amount is limited). Third-party loans guaranteed by a group company are considered as intra-group loans, and thus subject to the new legislation.

Initial depreciation rules for machinery, cars, and other operating equipment were increased from 20 percent to 30 percent in the year of purchase. The depreciation rate will remain at 20 percent in the following years.

The net wealth taxation of primary residences remained unchanged.

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