In the context of the broader tax reform, the Ministry of Finance is also proceeding with the green tax reform, which, among other things, includes significant burdens on conventional fuels, with simultaneous tax exemption in other sectors. In the first preliminary studies of the Ministry of Finance, things are not at all encouraging for those who drive private cars and heat their homes with liquid fuels.
The final form of the policy is expected in the second half of 2021. However, it is not ruled out that Brussels will overtake the Republic of Cyprus as part of the review of the European Emissions Trading Scheme (ETS) until June 2021. expansion of the system to new sectors other than industry and electricity and heat generation already included.
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Specific objectives are to expand coal pricing and emissions trading in sectors such as buildings, road transport, air transport and shipping. Therefore, the charge will be decided by the Commission and fuel suppliers will buy rights to supply motor and heating fuels on the market.
Regarding the plans elaborated by the Ministry of Finance for the environmental tax measures, these include a carbon tax in the energy sector, a fee for water supply and a landfill fee. For natural resources, it is proposed to introduce within two years a charge for water supply that corresponds to the estimated cost of water scarcity and the cost of the environmental impact of the use of water supply in Cyprus. Regarding the landfill fee, the introduction of a single nationwide charge for ordinary household waste is envisaged, with the imposition of a landfill tax, which covers the cost of waste management throughout Cyprus.
At the same time, it is proposed to abolish environmentally harmful subsidies. In terms of transport, Cyprus has already implemented since 2014 a green tax reform on road taxes and excise duties on vehicles, which was further revised in March 2019.
Specifically, with regard to the carbon tax, it is gradually proposed its introduction for the period 2021-2026 for all fuels used in the sectors of the economy that do not fall under the Greenhouse Gas Emissions Trading Scheme (SED). It is proposed to impose a tax of € 20 / ton CO2 / year from 2021 so that by 2026 the carbon tax rises to € 120 per ton.
The impact of the introduction of the proposed coal tax will be for every liquid fuel used in Cyprus, ie gasoline, diesel, heating oil, LPG and light fuel oil. For 2021 the tax on gasoline will be 4.6 cents / liter and will gradually rise in 2026 to 27.6 cents / liter. In diesel / heating oil the tax in 2021 is 5.43 cents / liter and in 2026 it will reach 32.56 cents / liter. In LPG the tax in 2021 will be 3.04 cents / liter and will reach 18.25 cents / liter in 2026 and in light fuel oil 6.04 in 2021 and will rise to 36.26 cents / liter.
From the introduction of the carbon tax, an increase in household expenditures is estimated to be between € 168 for the poorest and € 989 for the richer households (1.3% of the average income) per year.
At the same time, energy savings are estimated, by 100-130 ktoe or 6-8% from 2025 onwards, which implies a reduction of fuel import costs by € 60-97 million per year.
The impact on the road transport sector with its dependence on petroleum products is also considered important.
Only from the carbon tax and after taking into account the reduction from excise tax due to reduced fuel consumption, the net income of the Republic including VAT 19% will be projected at € 70.6 million in 2021, € 129.5 million in 2022 , and in 2025 will amount to € 311.5 million.
What does the proposal of the Ministry of Finance include?
A shift towards more efficient use of the economy's resources for environmentally sustainable development includes the plans of the Ministry of Finance for the green tax reform. The objectives of the policy are the environmentally rational and sustainable development by disconnecting it from the consumption of non-renewable resources, promoting the use of non-energy raw materials and at the same time reducing the use of energy-intensive raw materials. Further, they are achieved by integrating the environmental aspect into economic policy-making, including through green tax reform, fiscal neutrality and the reduction of environmentally harmful subsidies.
What Democracy and the citizens gain
• Contributes to the fulfillment of environmental objectives.
• Reduces distortions in the economy through the abolition of subsidies for the use of vehicles and the waste of energy, water, waste.
• Changes the correlation of prices between activities depending on how much they harm the environment.
• Encourages innovation and “green” investment in the energy sector, environmental protection and waste reduction.
• More efficient use of resources.
The disadvantages
• Increase in household spending on energy products.
• Increase in production costs for some companies.
• The carbon tax will increase proportionally more (up to more than 50%) the price of fuel oil used by some industries.
Revenues from taxes are returned to the citizens
According to the National Plan for Energy and Climate 2021-2030, it will be sought so that the revenues from tax burdens on polluting activities are returned to the citizens, such as by reducing labor costs and other compensatory measures.
Fiscally neutral reform by reducing the tax burden on labor which means reducing labor costs for businesses and maintaining / increasing competitiveness and employment.
Reducing labor costs is important because labor costs are burdened by other policies and green tax reform affects production costs.
Compensatory measures to alleviate the tax burden on households in order to protect low incomes and maintain disposable income. Compensatory measures for vulnerable groups of the population.
Using part of the revenue to promote energy-efficient homes and vehicles – helps to increase investment in these sectors – thus promoting the decoupling of economic growth from resource use and the environmental benefits of all green reform.
Compensatory measures
Μέτρα Tax measures that will be studied taking into account the new conditions that have been created due to the pandemic and the burden of adopting new measures.
. Introduction of a Plan to encourage the purchase of hybrid vehicles that will be valid for a period of 5 years from the adoption of the carbon tax.
. Extension of the existing Plan to encourage the use of RES and energy savings in homes.
