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Finland's windfall tax on energy firms could raise €1.3bn

The Finance Ministry has released more information about the proposed windfall tax on energy firms. The aim is to tax a third of the profits that exceed what the ministry regards as reasonable return on capital.

Image: Matias Väänänen / Yle

The energy war started by Russia and consequent rises in energy prices have brought massive profits to many energy firms without them having to do anything special. A windfall tax is one way to deal with these excessive profits.

The EU-wide tax project has begun to take shape in Finland as well. The Finance Ministry’s proposal for a temporary tax on firms in the electricity and fossil fuels sector has just been sent out for consultation.

The tax would take 33 percent of the firms’ net profits from electricity operations in 2023, after excluding a five percent return on capital deployed in those operations from the tax. The tax would be paid in the same way as normal corporate income taxes (siirryt toiseen palveluun) on profits.

The total sum brought in by this windfall tax is expected to be between half a billion and 1.3 billion euros, according to the Finance Ministry. The range is quite large, as the profit levels of these firms are difficult to determine in advance.

They depend on electricity price developments and the extent of domestic electricity production next year.

Small-scale electricity production is excluded from the scope of the tax, along with some district heating systems.

The same type of tax would hit the profits of companies selling certain types of fossil fuels. They would be firms where 75 percent of turnover comes from crude oil or natural gas production, refined products of crude oil or coal.

The consultation period ends on 12 December.

Finance Minister Annika Saarikko (Cen) said in parliament on Thursday that the temporary tax has been prepared on an accelerated timetable.

Energy industry startled by the sums

Jukka Leskelä of the industry lobbyist Finnish Energy says that he is confused by the extent of the sums to be taxed.

"We regard income transfers as very understandable, if the consequences of the war bring significant extra profits to some firms at the same time as customers’ prices rise steeply," said Leskelä.

At the same time, Leskelä says he wonders about the expected return from the tax.

"This 0.5-1.5 billion euros sounds like a really big sum. The original estimate in the EU’s directive was that this would be at most tens of millions of euros, or a hundred million euros."

Taxing a third of the extra profits could threaten companies’ ability to invest, according to Leskelä.

"It is important that the cut is a one-off," continued Leskelä. "If the impression is given that this might continue, or if it will be this large, that would absolutely affect companies' ability to invest."

"Firms must be able to continue their investments, so that we can get past the energy crisis."

No impact on customers’ bills

Leskelä says that Finns’ electricity bills will not reduce, unless the state increases spending on subsidies.

The latest form of relief was a temporary cut in the rate of VAT levied on electricity supplies from 24 percent to 10 percent.

Jari Salokoski, an official at the Finance Ministry, says that new subsidies are not in the works.

"The reduced VAT levy has just come into effect, there is an expanded tax credit for household expenses (siirryt toiseen palveluun), and so on," said Salokoski. "These measures have been introduced and paid for. The money from this tax won’t immediately be spent on other measures, but they will fill the hole left by already implemented measures."

Salokoski adds that Finland has aimed to hit the revenue targets decided at EU level. Different countries have their own ways of implementing the tax, however. But this will not be a permanent measure.

"This is a temporary tax," said Salokoski.

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