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Russian tax to develop modern auto recycling structure

VIC review
Russian cars have come along way from the Moskvitsh but they still need recycling
A new car utilisation fee in Russia has opened the door on the development of a modern auto recycling system in the country. The fee is being sold as a measure to boost environmental standards but this new tax also gives the Kremlin the ability to favour their domestic car makers and penalise foreign manufacturers.

The new law was signed off by Vladimir Putin in early August 2012 and took effect from September 1st, 2012. All passenger cars sold in Russia will be subject to the new levy and the rate is expected to be between £400 to £850. The amount charged will depend on issues that could affect a particular vehicle’s disposal costs.

A great deal of effort has been put into building the domestic car industry in Russia but at least 30% of the vehicles on the road are more than 15 years old, with many in a poor state of repair. According to a recent report by PricewaterhouseCoopers Investment, at least $2bn will be required to install a modern vehicle disposal infrastructure, including stations for collecting ELVs, auto recycling facilities and shredders.

There is a dark side to the new tax. According to an article on the FT website, which comments, “If properly administered the utilisation fee could help foot the bill. Car manufacturers and importers will be responsible for paying the tax and the proceeds will be used to dispose of clunkers in an environmentally safe way. There is however provision for several exceptions in the law that could be used to discriminate against Russia’s foreign trading partners, say lawyers White and Case.

For example, carmakers that undertake safely to dispose of cars once they are no longer in operation might be eligible to avoid the new tax. It is difficult to envisage how a foreign car supplier without an assembly base in Russia or the appropriate connections could wiggle through that loophole”.

On a plus note, Russia recently joined the World Trade Organisation which means taxes that discriminate against foreign suppliers will have to be phased out. In the meantime, there should be good opportunities for Russian auto recyclers.

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