Tax piles on tax, as VAT rises 2 percentage points in 2018 budget
By Hans Jørgen Elnæs
The Norwegian hospitality association NHO Reiseliv has been very clear in its communication to the Norwegian parliament and coalition parties in the government about there being no room for a VAT increase on hotel, transport and related services.
Any increase from the current 10% VAT level will only result in reduced profit margins and more pressure on costs, as the price level on the services affected is already close to the ceiling for what customers are willing to pay.
But despite warnings from the trade, VAT will from 1 January be increased to 12%, up 2 percentage points.
The VAT applies to hotel rooms, air, sea and land transport services, cinemas, amusements parks, museums, sports arrangements and national TV and radio services.
VAT up 50% in two years
Norway is an attractive tourist destination, but expensive. Forex Bank’s holiday index 2017 ranks Norway the sixth most expensive country in the world. One of the reasons for it being in such top ten lists is that VAT has increased by no less than 50% over the last two years.
The travel and tourism industry is growing fast in many parts of Norway, but for many companies most of the revenues are linked to the summer or winter season, resulting in a limited number of full-time employees, and peak season requirements are often manned by part-time staff. This is not sustainable in the long run.
Specious ‘environmental tax’ continues
In 2016, a new air passenger tax of NOK 80 (€8.24) per passenger was imposed by the government. The strategy behind this ‘environmental tax’ was to curb international and domestic travel by air and encourage passengers to use more train, boat and bus services. The tax was heavily opposed by airlines, with Ryanair in the lead, but without success.
The most serious outcome of the new tax was Ryanair cutting its traffic volume by 50% at the public-private owned airport Oslo Rygge, forcing its owners to shut down the airport with 500 employees losing their jobs.
Also a number of marginal domestic routes operated by SAS, Norwegian and Widerøe have been discontinued or operated with reduced capacity. The annual tax cost for the airlines is estimated to be NOK 1.2 billion.
No wonder airfares are so high
The passenger tax is also an effective tool to cool down interest from low-cost carriers to start up or increase their activities in Norway, resulting in less competition and higher fares on flights to, from and within Norway.
Since 2016, the tax has increased from NOK 80 to 82 and in 2018 it will rise to NOK 83. Add the 12% VAT on top, and it is understandable that the travel industry and airlines are dissatisfied with the 2018 national budget.