Tax on Electricity Companies’ Excessive Profits Fails to Generate Expected Revenue

Tax on Electricity Companies’ Excessive Profits Fails to Generate Expected Revenue

At the end of 2022, the hastily prepared extra profit tax was expected to have a significant impact on the excessive profits of electricity producers. However, according to a report by HS, the actual income from this tax is likely to be only a few million euros, far below the initial expectation of EUR 0.5–1.3 billion. This means that for electricity companies, the income from this regulated windfall tax is turning out to be much lower than anticipated.

The Ministry of Finance quickly drafted the additional profit tax law for electricity producers at the government’s request by the end of 2022. The intention was for the state to collect a portion of the surplus income earned by major electricity producers due to the increase in electricity prices after the war of aggression against Russia. The tax was meant to help offset subsidies paid to electricity users impacted by high electricity prices.

However, due to the decrease in electricity prices and changes in the implementation of the tax, it appears that very little tax will actually be collected in the end. Initially, it was believed that the return from this tax could be substantial, but with the drop in electricity prices, the expected revenue has diminished significantly.

The largest potential payers of this tax are the biggest electricity producers in Finland, such as Fortum, UPM, and Helen. These companies, particularly Fortum with its significant hydropower assets, benefited from the high electricity prices in 2022. While exact figures on the tax amount are not available, reports indicate that UPM has accumulated around one million euros to be paid, while Helen has paid 3.5 million euros in additional profit tax.

Fortum, on the other hand, does not expect to pay any additional profit tax at all for 2023, as stated in their third-quarter earnings report. The fluctuating electricity prices and the rapid decline in prices at the beginning of 2023 have impacted the potential tax revenue collected from electricity producers.

The tax is designed to tax 30 percent of a company’s electricity business profit that exceeds a 10 percent annual return on the adjusted equity of the business. Originally, the conditions for the tax were stricter, but they were revised in the final draft law after feedback from stakeholders. While the tax was intended to apply to fossil fuels as well, in practice, no company in Finland seemed to fall under this category.

Overall, the final impact of this tax on electricity producers and the state’s revenue remains uncertain as more data becomes available in the fall. The evolving situation with electricity prices and the effectiveness of the tax in achieving its intended goals will be closely monitored moving forward.

Leave a Reply