Filenews 15 October 2023 - by Eleftheria Paizanou
Bills are being drafted by the Ministry of Finance, which will impose a green or carbon tax on fuels or other products in early 2024.
At the same time, proposals are being prepared that will provide for compensatory measures to households, in order to mitigate the burden of the new taxation.
The amount of green taxation to be imposed on taxpayers will be decided by the Ministry of Finance, after examining a series of scenarios. Subsequently, the study that the University of Cyprus has already been asked to conduct – and deliver in mid-November – will propose compensatory measures, which will mitigate the impact on taxpayers.
In addition to the green hike on fuel, citizens will be asked to pay special fees for water, as well as for household waste.
Inevitable decision
The imposition of this tax is a road of no return, as the Republic has committed under the previous Government to the Commission, in the context of the approval and implementation of the National Recovery Fund.
Based on the prerequisites for the disbursement of the financial tranches from the European Recovery Fund, the bill imposing green and carbon taxes on fuels should be voted on by the end of 2023. However, it is estimated that it is difficult to implement this, as the relevant bills have not yet been completed by the competent services.
Even when they are prepared, they will be put to public consultation, sent to the Legal Service for legislative scrutiny and then they will have to be approved by the Council of Ministers and submitted to Parliament for their final enactment into laws. Due to the seriousness of the issue, the discussion of bills by the competent parliamentary committee will either take some time, so approval will inevitably take place in the new year.
Attempt for an extension
The expected approval of the amendment of the Cypriot Recovery Plan on the basis of an amendment submitted by the Government to the Commission, may give some time credit to the competent authorities to prepare the legislation on green taxation, despite the fact that there is already a delay on the part of the Republic.
As "F" is informed, in government circles there is intense discomfort, as they consider that they have inherited from the Anastasiades Government the specific obligations for tax burdens, which it is called upon to apply in a very difficult economic period but also with limited time limits.
In addition, some government officials worry that the extra taxes, at a time of high and prolonged inflation, especially on energy products but also on basic foods, will seriously damage the government's image. On the other hand, it is accepted that this tax should be imposed close to the timetables agreed by the previous government with the EU, so as not to get the country into trouble in relation to the hundreds of millions of grants provided through the Recovery Plan.
What the Commission found
The weaknesses, gaps and omissions identified by Brussels in the management of environmental issues led to the decision to impose the carbon tax. The Cypriot Recovery Plan, in the category of measures aimed at climate neutrality, energy efficiency and renewable energy sources, adopts measures to improve environmental policy, such as green tax reform.
This action supports the implementation of the European Commission's (EU) country-specific recommendations for the years 2019 and 2020 in the field of environmental sustainability. As stated in the EU report, Cyprus' development model has a negative impact on the environment and prevents climate neutrality.
At the same time, it is indicated that over the years this model has negatively affected the natural environment of Cyprus. In addition, it is stressed that Cyprus performs below the EU average, with a tendency to deteriorate, in relation to the productivity of natural resources and therefore the efficient protection and use of resources is of paramount importance to ensure sustainable growth in the future.
In three areas the weaknesses
Cyprus' weaknesses in the management of environmental issues, based on the EU Country Specific Recommendation Report, focus on three areas: waste and water management, climate change and energy efficiency.
In detail, for waste management, the EU report states that waste generation rates are high, recycling rates low and there is a strong dependence on landfill. At the same time, it finds that municipal waste generation is much higher than the EU average. "Municipal waste generation is higher than the EU-average of 640 kg per year per inhabitant, compared to around 482kg in the EU (2016), with the largest proportion going to landfill, contributing to high emissions," the report said.
Regarding the management of water resources, the report underlines that Cyprus is one of the countries facing the greatest shortage of water resources, especially during periods of prolonged drought.
In addition, it is stressed that despite the significant investments made so far, amounting to up to 3.5% of GDP (a significant number of which are not expected to be implemented before 2027), more efficient management of water resources is required.
The report also mentions climate change and energy efficiency. According to the report, Cyprus is among the Member States with the highest greenhouse gas emissions among Member States (11.6 tons of CO2/ per capita compared to the EU average of 8.8 tons of CO2/ per capita).
How much tax did other countries in Europe impose?
In recent years, several countries have taken steps to reduce carbon emissions, including the introduction of environmental regulations and carbon taxes.
In 1990, Finland was the first country in the world to introduce a carbon tax. This was followed by 20 other European countries imposing carbon taxes, which are below €1 per metric ton of carbon emissions in Ukraine and beyond €100 in Sweden, Liechtenstein and Switzerland.
Switzerland and Liechtenstein impose the highest carbon taxes, with the surcharge being €120.16 per ton of carbon emissions. It is followed by Sweden with €115.34 per tonne of carbon emissions and Norway with €83.47.
The lowest carbon tax rates are imposed in Ukraine at €0.75 and Estonia at €2 per tonne of carbon emissions. The data are included in the Tax Foundatıon and refer to the period up to the end of March 2023.
Meanwhile, the countries that have most recently imposed this tax are Austria, in 2022, with the surcharge amounting to €32.50 per ton of carbon emissions. In 2021, this measure was also imposed by Germany, with €30, Luxembourg with €44.19 and the Netherlands with €51.07 per metric ton for carbon emissions.
Europeans gave their lights
It should be noted that the Republic, for the enforcement of the green tax reform, also received technical assistance from the EU, for the preparation of a relevant study. EU experts undertook the project under the Technical Support Instrument programme.
Theproject started in September 2021 and ended in November 2022. In June last year, it was presented to stakeholders.
During the preparation of the project, the best practices of other Member States in the areas of waste management, water resources and climate change were examined and policies that were not considered appropriate for Cyprus or could not be adopted were excluded.
The interaction with the EU proposals included in its Green Transition Plan (FIT 55) was also examined and there is an exchange of views/consultation with other government stakeholders.
