The products and services that will be affected by green taxation, as revealed by yesterday’s meeting at the Ministry of Finance regarding the Comprehensive Tax Transformation Project initiated by the University of Cyprus Economics Research Center.
However, specific compensatory measures accompanying the green taxation to ensure fiscal neutrality were not specified. Dialogue will precede the adoption of political decisions on the matter, as assured by Makis Keravnos.
As presented, in the initial phase of the green transition, green fees will accompany fuel prices, water, and hotel accommodation.
From these green fees, the state is expected to generate additional revenues of approximately 100 million euros in 2024, which will be allocated to compensatory measures to ensure that households and businesses are not adversely affected by the new fees, as well as to support financing schemes for energy efficiency and green investments.
In detail, starting this year, certainly within the first half of 2024, green taxation will affect motor fuels (gasoline and diesel), fuels used by businesses, water, and hotel accommodation. According to the scenario promoted by the Ministry of Finance, a green accommodation fee of €2.5 per room per night is anticipated.
Regarding motor fuels, under the basic scenario, a green carbon tax on motor fuels is expected to be imposed this year at €0.05 per litre, which will increase to €0.07 per litre next year and €0.10 per litre in 2026. Value-added tax (VAT) will also be applied to this fee, as with other fuel taxes.
It is estimated that the state will generate additional revenues of €52 million this year alone from green taxation on motor fuels, of which €19 million will be contributed by businesses and €33 million by households. The green fee on water is expected to be €0.01 per cubic meter, with no calculation available for state revenues.
This year, revenues of €13 million are expected from the imposition of a green tax on production fuels used by businesses for energy production (excluding renewable energy sources and other industries already paying pollution fees).
This tax is calculated at €0.07 per litre for this year, €0.11 per litre for 2025, and €0.16 per litre for 2026.
Both the state revenues from the green tax reform and the exact amount by which fuel prices will be increased, particularly since the reduction in consumption tax will end by the end of March, will depend on the decisions made by the government and subsequently promoted through legislation in Parliament.
Similarly, the burden on households will depend largely on the compensatory measures accompanying the forthcoming green taxes.
The University of Cyprus estimates the burden on households, measured as welfare loss, to average €121 annually, with the amount varying depending on each household’s composition and whether it is located in urban or rural areas.