The Faroe Islands government has instituted a new tax regime for salmon farmers that everyone hopes will reduce year-to-year volatility in tax bills on salmon farm operations. The new tax system reduces one calculated tax that companies found hard to predict and adds a new tax that is easier to predict, helping to stabilise the overall tax bill. It applies only to offshore operations, not smolt production nor land-based farms. The old tax of 20% on revenue is reduced to 7.5%, and a new corporate tax of 12% is added to the existing 18% corporate tax. The fluctuations arose in the calculation of the revenue tax. Previously, the revenue tax was based on an estimate of gross revenue (price) using the FishPool index and average production cost based on a volume-weighted calculation. Now, price is calculated using the SISALMONI index and cost is a simple average of data across the three Faroese salmon farming companies.
The volatility in revenue tax led Faroese farmers including Bakkafrost to shy away from long-term contracts. Such contracts are an important element in many channels of the salmon supply chain, from farm to retail. The new tax is based on easier calculation methods and is a smaller part of overall taxes. However, the price estimate it is based on is still an index of foreign prices (albeit a different index), but some industry members see this drawback as acceptable if it means the tax’s volatility is reduced. Others in the industry are concerned that the tax change applies only to offshore operations (only Bakkafrost farms its salmon entirely offshore) and may give advantages to some companies over others. A tax only on offshore producers is defended by the Faroese government as a way to charge for using public property. What [companies] are paying for is a vast exclusive right to use the fjords, the ocean, and the water in the Faroes. We think that it is correct that they pay for each kilo of salmon that they produce, says Høgni Hoydal, Faroese Business and Foreign Relations Minister.