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If environmental tax rate increases, the Ukrainian industrial sector may suffer significant losses

The European Business Association (EBA) calls on the Parliament to foster the imposition of a moratorium on a hike in environmental tax rate until the end of 2021,

according to a letter of the Association to heads of parliamentary committees on finance, budget and environmental policy, as well as the Ministry of Energy and Environmental Protection.

“Given a pre-crisis rate decline in industrial production and the crisis associated with the spread of COVID-19, we ask you to foster the imposition of a moratorium on an increase in tax rates, including environmental tax rate, until the end of 2021,” the document says.

The main taxpayers in Ukraine are large industrial enterprises. Their activities have a direct impact on the environment. At the same time, there are virtually no examples when oblast or local authorities managed to somehow reduce these effects through environmental tax. Money go to greenspace expansion or sewer connection repair at best.

In the past few months, an economic decline in general and a drop in industrial production in particular has been recorded not only in Ukraine, but also around the globe. This is primarily due to the imposition of the quarantine measures caused by the pandemic of the coronavirus COVID-19.

Hence, environmental effects are reduced due to a decline in production. Yet at the same time, companies are forced to take action aimed mainly at preserving jobs and maintaining business operations amid a collapse in market demand.

Based on preliminary estimates by EBA experts, industrial production will be able to recover to the pre-crisis state in around 2–3 years.

In this regard, EBA experts propose to refrain from raising environmental tax rate until the end of 2021.

EBA experts also propose to revoke draft laws aimed at imposing a 1.5 fold increase in environmental tax rate and adopt a long-term and predictable plan to gradually increase tax rate for emitting pollutants into the air by stationary sources (except for СО2 and СО), dumping pollutants into water and placing wastes at special designated areas in 2022–2030:

  • In 2022 — by 10%;
  • In 2023 — by 20%;
  • In 2025 — by 30%;
  • In 2027 — by 40%;
  • In 2030 — by 50%.

If the environmental tax rate increases in 2020, the Ukrainian industrial sector may suffer significant losses. This, in turn, may curb investment and decrease the amount of tax revenue in the state budget.

As GMK Center reported earlier, in November 2019, a group of MPs from the Sluga Narodu faction presented a draft Law proposing to increase the environmental tax fourfold.