On Thursday, the Ministry of Finance announced the government’s proposal regarding the electricity industry’s profit tax. According to the government’s proposal, a temporary profit tax would be introduced for companies that produce and sell electricity.
“The amount of the tax would be 30 percent of the company’s electricity business profit to the extent that it exceeds the ten percent return calculated on the amount of equity committed to the electricity business.”
The tax has been diluted during the opinion round, because in the government’s proposal that went out for opinions, its amount was 33 percent. In addition, in the original proposal, tax would have been collected from the profit on the part exceeding five percent of the profit.
The result of the electricity business would mean the net income of the electricity business, i.e. the difference between income and expenses.
According to the ministry’s press release, the proposal is based on the EU regulation on energy emergency measures, which requires national fiscal measures to cut profits caused by high energy prices. The preparation of the profit tax for electricity producers was also outlined in the government’s autumn 2022 budget negotiations.
The profits made by electricity companies in the middle of the energy crisis have generally been described as “excessive”.
The government’s goal is to “implement the temporary fiscal measures required by the EU regulation and cut the profits of electricity companies with a one-time tax to the state in a situation where the electricity industry makes significant profits at the same time as the rise in the price of electricity has led to a deterioration in the financial situation of households”.
The profit tax would be applied in addition to the income tax paid on company profits, and the tax would not be deductible in corporate income taxation. Small electricity businesses and clean electricity retailers would be excluded from tax liability. As a tax on electricity business, the production of district heat in cogeneration plants would be excluded, among other things.
The tax revenue would accrue to the state afterwards in 2024. Its size depends mainly on the development of electricity prices and the amount of domestic electricity production in 2023, so it is difficult to predict.
“According to estimates, the revenue would be 0.5–1.3 billion euros,” the ministry says.
According to the release, a similar tax of 33 percent would also be applied to the profits of some companies in the fossil fuel industry in the tax year 2023, as required by the EU regulation. The target of the tax would be the result of the company’s business activity, which is more than 120 percent of the average business result of the tax years 2018-2021. The tax revenue is estimated to be low in this respect.