Transformation of environmental charges

Pepeliaev Group advises that a draft law has been made available for public discussion. This draft law provides for the charge for a negative environmental impact to be replaced with an environmental tax, and for environmental and recycling fees to be replaced with a recycling fee, with the new payments being introduced into the Russian Tax Code[1].

Environmental tax: proposed amendments

The draft of the law (the “Draft Law”) provides for chapter 25.5 ‘Environmental Tax’ to be introduced into part two of the Russian Tax Code (the “Tax Code”)

In general the provisions of the new chapter of the Tax Code correspond to the provisions of Federal Law No. 7-FZ “On environmental protection” dated 10 January 2002 (the “Law on Environmental Protection”), and the Resolution of the Russian Government “On calculating and collecting charges for a negative environmental impact” (“the Russian Government’s Resolution No. 255”). Thus, the approach with respect to the following elements of the charge remains the same:

  • the general definition of the payer;
  • the definition of the taxable item and the tax base;
  • the establishment of tax and reporting periods, and the procedure for calculating tax and advance payments;
  • the establishment of tax deductions (under the Law on Environmental Protection, a set-off of environmental costs);
  • the establishment of coefficients to be applied.

Комментарий ПГ

The absence of precise wording concerning the application of the multiplying coefficient K=100 raises questions: it is unclear whether this coefficient applies to the total volume of excessive emissions/discharges, or only to the volume of emissions/discharges that exceed the agreed standards at the time. The last option, corresponding to the general provisions on forming the tax base, does not directly follow from the text of the Draft Law. This may result in K=100 being applied to temporarily agreed volumes of emissions/discharges.

However, there are certain new developments, namely, the following:

  • users of mineral resources have been stated separately as payers of environmental tax;
  • a concept of a ‘group of taxpayers’ has been introduced with a reference to the criteria established by article 105.1 of Tax Code, with respect to separate cases when users of mineral resources calculate tax;
  • a restriction has been established with respect to applying K=0 once the best available technologies are implemented – for 10 tax periods;
  • the tax rates correspond to the rates of the charge established for 2018[2], while at the same time provision is made for an inflation coefficient to be applied annually.
  • taxpayers who apply special tax regimes (except for the taxation system applied when production sharing agreements are performed) are not obliged to calculate and make advance payments.
  • provision is made for an obligation to file a set of reporting documents together with a tax return with respect to taxpayers operating category III facilities;
  • the placement of waste in placement facilities that exclude a negative environmental impact (“NEI”) is not recognised as a taxable item, provided that a resolution of the competent authority to this effect has been filed with the tax authority.
  • a restriction has been established on the application of the tax deduction: this is possible only within the amount of tax calculated within the limits of standards of permitted emissions and permitted discharges.

Комментарий ПГ

The current regulation allows the setting-off of costs within the total amount of the charge (calculated both within the limits of the statutory standards and taking into account the excessive impact).

  • a threshold for a tax deduction has been established: not more than 70% of the amount of tax calculated within the tax period.

Комментарий ПГ

The current regulation does not provide for such a restriction. Enterprises have regularly criticised the provisions of Law No. 7-FZ, which restrict the booking of costs only with respect to those pollutants with the aim of decreasing which the measure was taken; this makes it impossible to book the total amount of costs incurred within the period when a plan of actions to protect the environment is in force. Since the current restriction (with respect to pollutants, the timeframes of a plan, and a programme of actions to protect the environment) also stays in force, the issue arises of whether it is justified to establish an additional restriction of 70% with respect to the amount of costs.

Issues of tax administration of the environmental tax

A NEI facility is registered as a taxpayer according to its location, which is understood to mean the relevant constituent entity of the Russian Federation. Accordingly, if NEI facilities are located in different constituent entities of the Russian Federation, then a taxpayer needs to be registered in each constituent entity.

The Federal Supervisory Natural Resources Management Service (known by the Russian abbreviation Rosprirodnadzor) is obliged to provide the tax authorities with information about volumes of NEI (annually), as well as information and amendments to the information entered in state registers of NEI facilities (within 10 days from the date when the information and amendments were entered).

When conducting a desk tax audit of an environmental tax return the tax authorities have been granted the right to examine territories and premises as well as documents and items of the audited entity.

Комментарий ПГ

In the current version of articles 91 and 92 of the Tax Code, such powers are granted to the tax authorities only when they conduct a desk tax audit of a VAT tax return. It can be concluded that the government attaches great significance to the introduction of environmental tax as a source for replenishing the state budget.

The Draft Law does not solve the problem of the current excessive NEI charges, and the problem with returning amounts of advance payments paid in excess when the model for such payments has been changed to a tax model. There exists well-known negative experience of transferring administration of insurance contributions to the tax authorities, when payers ‘lost’ the corresponding amounts transferred to the Pension Fund and if they paid in excess they had, in addition, to pay current payments and initiate court processes to obtain refunds of the amounts paid in excess.

Unified recycling tax

The Draft Law provides for the currently collected recycling and environmental fees to be replaced with a unified recycling fee (actually a tax) and for this to be included in the Tax Code.

The Draft Law mainly transfers to the Tax Code the current regulatory provisions related to payment of the recycling fee (on vehicles) and the environmental fee (on certain types of goods that must be recycled once they have lost their consumer properties). What is more, who constitute the payers, the item subject to the fee, rates, and the procedure of calculation and payment more or less correspond to current regulation.

At the same time the legal regulation of waste treatment ensures that manufacturers and importers lose the incentive to recycle waste, in the sense of using waste in the business activities as additional sources of raw materials. For example, current legislation applies lowered standards of recycling to packaging produced from recoverable resources. The Draft Law contains no such provision.

Moreover, currently the main method of fulfilling recycling standards is to recycle waste either using one's own resources or by entering into contracts with parties that recycle waste, and the environmental fee is paid only by manufacturers and importers of goods who do not ensure the recycling of waste from the use of goods. The Draft Law also does not contain any such procedure.

In fact, the recycling fee that is proposed to be included in the Tax Code will represent a hidden excise duty on a wide range of goods, which is collected from manufacturers and importers who sell their goods in Russia. At the same time, as with the replacement of the charge for a negative impact on the environment, the inclusion of the recycling fee in the Tax Code will entail all the above problems associated with toughening the procedure of administration of these payments, including a threat of criminal liability.


If there are no significant changes in terms of the range of parties obliged to pay the ‘new’ fees, the item that is subject to these fees, the rates, and the procedure for calculation and payment, then with regard to the procedure of conducting audits, and, most importantly, with regard to the collection of the tax, once the law has been adopted, highly effective measures of tax administration will be applied, including direct recovery, the blocking of accounts, seizure of documents, collection of default interest, and imposition of fines and criminal liability. Despite the promises of government officials[3], this will clearly result in an increase of the tax and administrative burden on business.

Instead of specialists in the relevant area, these fees will be administered by the tax authorities, whose employees will probably lack the necessary qualifications at the beginning.

In the light of the above the decrease to 10% of the amount of fine under article 122(1) of the Tax Code for the failure to pay, in full or in part, an amount of environmental tax and/or of the recycling fee in the period from 1 January 2020 to 31 December 2029 does not seem to be a significant concession to business. Moreover, as follows from the explanatory note to the Draft Law, it is the possibility of imposing criminal liability together with other measures aimed at ensuring the payment and collection of taxes, that the Draft Law's proponents consider to be an advantage and a reason for transferring NEI charges to the tax authorities, since current legal regulation does not ensure a ‘proper incentive’[4] to perform the obligations to pay NEI charges.

An attempt to ensure a ‘proper incentive’ for the payment of the environmental charge seems to be a draft of a federal law prepared by the Russian Ministry for the Protection of the Environment and Natural Resources concerning the amendment of the Code of Administrative Offences in terms of toughening liability for a violation of legislation for dealing with production and consumption waste, which establishes draconian fines[5]. A draft law with similar content was submitted to the State Duma, the lower house of Russia's parliament, on 6 December this year by a representative[6].

The issue of whether the funds being collected are being spent on the designated purpose is still outstanding, and this is one of the main disadvantages of the Draft Law. The absence of the designated nature of the environmental and recycling taxes also evidences that the inclusion of the new payments to the Tax Code is pursuing only the goal of replenishing the treasury's coffers, and has nothing to do with resolving environmental issues[7].

What to think about and what to do

The provisions of the Draft Law need to be analysed together with tax and environmental (technical) departments of companies, then suggestions for improvement need to be prepared and sent to the relevant business associations and state authorities.

Help from your advisers

Pepeliaev Group’s lawyers are ready to analyse risks arising in connection with the Draft Law as a whole, and with regard to specific companies, to draw up proposals for improvement and to send them to the corresponding business associations and state authorities.

[1]The draft of the federal law “On amending part one and two of the Russian Tax Code” (with respect to the inclusion of separate non-tax payments in the Russian Tax Code), http://regulation.gov.ru/projects#npa=84496.

[2]Rates of the charge for a negative environmental impact are established by the Resolution No. 913 of the Russian Government dated 13 September 2016.

[3]Explanations of the Ministry of Finance dated 14 August 2018(http://www.ecoindustry.ru/news/view/53933.html).

[4]From the explanatory note to the Draft Law: “Liability for a violation of environmental legislation with regard to mandatory payments is enshrined in the Code of Administrative Offences. Unpaid charges are collected through court proceedings, and ways of ensuring the obligation to pay these charges are actually absent. A failure to pay environmental non-tax fees does not constitute a crime provided for by the Criminal Code. Therefore, within the framework of current legislation, payers have no proper incentive to conduct themselves legitimately in the form of paying the charge for a negative environmental impact.

The introduction of the environmental tax in conditions where the current level of the tax burden is maintained will allow the proceeds to the Russian state budgetary system to be increased at the expense of increasing the quality of administration, which means that it is possible to impose measures of tax, administrative and criminal liability, ways of ensuring performance of the obligation to pay taxes and levies, and a mechanism of enforced and indisputable recovery”.

[7]The Russian Environmental Protection Strategy for the period to 2025 (approved by Russian President’s Order No. 176 dated 19 April 2017) specifies, among the challenges and threats of environmental safety, the following: “the improper and inefficient use of funds flowing to the budgets of the Russian state budgetary system by way of a charge for a negative environmental impact, compensation of harm caused to the environment, administrative fines and other environmental payments and taxes”.

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