A new tax on motor fuels is set to be introduced in 2027 as part of the new Emissions Trading System (ETS2), which also covers road transport.
When combined with the implementation of the Green Tax Reform, a commitment of the Republic of Cyprus to the Recovery and Resilience Plan, expected to take effect in the coming period (April 1, 2024, based on the proposed carbon tax bill), it will further drive up the prices of motor fuels.
All this comes at a time when fuel prices are once again on the rise, and it is noted that this upward trend will continue with international prices increasing and the new burdens expected in Cyprus to be at higher prices.
Therefore, from April 1, motorists refuelling at petrol stations will find prices to be 8.33 cents per litre higher than they are today due to the government’s decision to abolish the subsidies currently in place, reinstating the consumption tax to pre-tax reduction levels.
According to the proposed carbon tax bill for the next period and once approved by the House of Representatives, fuel prices will increase by 5 cents per litre.
The proposed bill includes a table that increases the carbon tax annually to reach 25 cents per litre by 2033.
In 2027, the proposed increase will reach 14 cents per litre. If the government proceeds beyond adopting the carbon tax to implement the ETS2 in 2027, fuel prices will increase even further.
It is estimated that the government will review the ETS2 tax once the green taxation on liquid fuels is introduced in the coming months.
Cyprus must align with the new ETS for buildings, road transport, and additional sectors by June 30, 2024. Therefore, it is expected that the bill will be submitted to the House of Representatives after the Easter holidays.
If the Green Tax Reform is not implemented by then, the government will face another challenge as two separate bills imposing additional taxes on fuels will be discussed in parliament.
In this case, to the already increased prices from carbon taxation, further prices will be added with the new tax targeting atmospheric emissions, affecting those using conventional fuels starting from 2027.
Unlike the carbon tax where the increase is horizontal for motor fuels, the estimation of the impact of ETS2 on retail fuel prices is different.
Moreover, by the end of the decade, the increase will be in the range of 5-15% for liquid fuels, with a smaller percentage increase in gasoline and liquefied petroleum gas prices and a higher percentage increase in heating oil and diesel prices.
In 2027, gasoline prices will increase by 6.8 cents and diesel by 8 cents. In 2028, gasoline will be higher by 10.8 cents and diesel by 12.8, in 2029 gasoline by 12.2 cents and diesel by 14.4, and in 2030 gasoline by 13.5 cents and diesel by 16 cents.
Therefore, in retail prices, in addition to the current 42.9 cents and 40 cents per litre for gasoline and diesel, respectively, as excise tax plus VAT at 19%, based on the drafts, two new taxes will be imposed, the first as a carbon tax and the second as a tax from ETS2.
That is, in 2027, based on estimates, the price of gasoline will be higher by 12 cents and diesel by 13 cents. Based on the same proposals, the additional taxation in 2030 at current prices will increase the price of gasoline by 35.5 cents and diesel by 38 cents per litre.