Tax proposal of forest group stalls over wood trade
Forest owners waiting for decisions on taxation of wood from forest thinning
A proposal for taxation put forward by a forestry working group set up by Prime Minister Matti Vanhanen (Centre) has led to problems in buying and selling wood. Forest owners are unwilling to sell trees before they know exactly how income from selling wood felled in the first thinning of a young forest is to be taxed.
The working group, led by former Prime Minister Esko Aho, who is currently the President of the Finnish Innovation Fund (SITRA), proposed that wood from the first thinning could be sold as raw material for pulp and paper without taxes. Other types of wood sales incur a tax of 28 per cent.
The working group was appointed by Prime Minister Vanhanen to deal with the problems being caused by Russia's export duties on raw timber, which is set to cause considerable hardship for the Finnish forest industry. A plan to increase the duty to EUR 50 per cubic metre next year would effectively end wood imports from Russia.
Wood from the first thinning accounts for about ten per cent of all felling. Although the amount is not large, it has an impact on other felling.
If a forest owner sells wood, he or she usually offers the buyer both young trees, and older ones at the end of their effective life cycle. If the taxation of wood from initial thinning is unclear, even the larger logs can easily be left unsold.
Forest companies used to shun wood from initial felling for thinning, because the harvesting methods are cumbersome, and the yield per hectare is small.
Currently, the industry has been threatened with stoppages in production if the availability of raw material is not structurally secured.
The working group was not able to evaluate the impact of the taxation proposal, even though the team includes some of Finland’s leading experts in the forest sector, including the CEO of UPM, Jussi Pesonen, Chairman of the Federation of Finnish Forest Industries, Anne Brunila, the federation’s managing director, and Antti Sahi head of forest affairs for the Central Union of Agricultural Producers and Forest Owners.
The working group had six experts at its disposal, including tax expert Veli-Pekka Nummikoski, a high official at the Ministry of Finance.
The idea of Aho’s working group was to implement the tax break quickly. However, this did not work out, as the proposal first needs to be examined by the European Commission, as the Ministry of Finance wants to make sure that Finland is not accused later of improper business subsidies.
Helsingin Sanomat has learned that the EU process is being delayed by uncertainty over which commissioner the issue applies to. In addition to the Commissioner for Taxation, the Commissioner for Competition is likely to want to take issue with forest taxation.
According to Esko Laitinen, the regional head of the Forest Owners’ Union of South Finland, the uncertainty over taxation has led to a stagnation in the sale of wood.
“A tax promise like that is unfortunate, because nobody wants to take risks in wood trade. At first it was said that the tax break would come retroactively. Now it is said that this is not possible”, Laitinen says.
Stora Enso forest taxation expert Raimo Summanen says that the owners of forests ready for thinning are waiting for a decision on the tax issue. “This is reflected in other wood sales”, he says.
Summanen says that precise definitions on what constitutes wood from initial thinning will be difficult. “Besides, I suspect that forest owners will be expecting tax cuts for other kinds of forests as well.
Summanen feels that the working group did not do a good job. “In matters of taxation, the background needs to be clarified well in order to avoid speculation. The same should have been done as was done for car taxation, which was implemented quickly."
Previously in HS International Edition:
No solution yet on Russian wood export tariff issue (19.3.2008)