Taxes and fees set to change in Iceland

Several Icelandic taxes and fees are set to rise by 5.2% next year under the budget proposal presented by Finance and Economic Affairs Minister Daði Már Kristófersson. The increase is intended to keep charges aligned with consumer-price inflation and prevent a real decline in state revenue.

The planned increases include vehicle taxes, carbon charges, alcohol, tobacco and nicotine duties, a special fee supporting Iceland’s national broadcaster, the Elderly Affairs Construction Fund charge, accommodation tax and an infrastructure fee. Fees for applications for short-term residence permits and citizenship would also increase, while an electricity equalisation charge would rise by an unspecified rate.

The proposal would extend an infrastructure prevention fee for the Reykjanes Peninsula for one year. It amounts to 0.08 per mille of the fire-insurance value of all insured properties in Iceland and is collected from insurance companies. A nature and infrastructure fee would also charge tourists for access to natural attractions owned by the state.

The government proposes raising the vehicle kilometre charge by 15.9%, including a 5.2% inflation-linked increase, with expected revenue of 4 billion Icelandic krónur. A new bank tax is expected to raise 6 billion krónur. Admission to bathing lagoons would move to the standard value-added tax rate, generating about 4 billion krónur, while the VAT refund rate for construction work on residential housing would be reduced, bringing in an estimated 3.6 billion krónur.

The budget assumptions project annual inflation at 5.2% this year and 3.6% next year. The Central Bank of Iceland has forecast that inflation will fall rapidly next year and reach 2.9% by the end of 2027.