On July 1, 2021, at an extraordinary sitting of the Verkhovna Rada, the bill №5600 “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balanced Budget Revenues” was adopted in the first reading. Among other critical novelties for business, the bill provides for the introduction of excise duty on electricity producers from renewable sources.
This bill was initiated by the Cabinet of Ministers of Ukraine on 02.06.2021, which provides for several amendments to the Tax Code, in particular, to exclude “electricity produced by qualified cogeneration units and / or from renewable energy sources” from Article 213 paragraph 2 (“Excise transactions, which are not subject to taxation ”), and thus provide for a new excise tax for RES producers at the level of 3.2%.
Incidentally, according to the Tax Code of Ukraine, the entry into force of this provision of the bill №5600 is no longer possible in 2021, as tax changes can not be made later than 6 months before the new budget period, so in compliance with the letter of the Law, not earlier than July 1, 2022. Also, any attempt to “accelerate” the entry into force of the rules violates the basic principle of stability of tax legislation.
Balancing the financial situation in the energy sector and finding sources to repay debts to electricity producers from RES is a really difficult task in the current conditions. However, another oppression of green energy market players due to the introduction of excise duty is clearly not a correct way out of this situation.
The initiative to introduce an excise tax on the sale of electricity produced from RES is of serious concern to the international and Ukrainian business community, as the introduction of additional taxes on electricity from RES will lead to non-compliance with existing agreements and norms of existing laws. generation from August 1, 2020, to January 1, 2030.
Representatives of the business community united by the European Business Association, the American Chamber of Commerce in Ukraine and the Union of Ukrainian Entrepreneurs, as well as the Solar Energy Association of Ukraine have repeatedly addressed numerous letters and statements to MPs and public authorities not to support the bill №5600 through its non-compliance with current legislation and called for thorough consultations with business as a matter of priority.
Given the pressure on clean renewable energy and billions in debt to RES last year, another restriction on the rights of market players only worsens the financial conditions for future environmental projects in Ukraine. We need to realize that European integration is not just about signing an Association Agreement, it is not just about declaring our intention to follow the principles of the European Green Course. It is to see pro-European initiatives as a chance to improve the lives of our country, its citizens, and to live up to all our commitments. However, recently leading European and international institutions such as the Energy Community, the European Bank for Reconstruction and Development have finally confirmed that the Ukrainian government and parliamentarians intend to violate their commitments and their own legislation – this is stated in the official letter of the international community. address of the Chairman of the Verkhovna Rada D. Razumkov.
All participants in the RES market have a consolidated position – Government Bill 5600 is another state robbery and manipulation that will have negative consequences for the RES industry and the country’s economy as a whole.
Such inconsistent and swift decisions in the green energy sector could further deepen the crisis of distrust in the Government and Parliament. The introduction of an excise tax on electricity at a “green” tariff will hurt Ukraine’s international image as a stable partner and will clearly significantly worsen Ukraine’s investment attractiveness. Currently, one of the largest investment funds in Scandinavia, NEFCO, has already announced the cessation of “green” investments in Ukraine as a result of the Government’s actions. In addition, not only the Lithuanian company Modus Energy International has filed a lawsuit against Ukraine for the fact that the state does not fulfill its obligations to pay for electricity and forces the company to change the rules that reduce its revenues. Obviously, such actions can cause a domino effect and lead to similar actions by other investors. And the excise tax on “green” energy only provokes a new round of arbitration of foreign investors against Ukraine.
As a result, disputes over the excise tax on RES will become another financial bottom for the state budget, and not vice versa. Annual losses for the RES industry in the amount of 3.5 billion hryvnias for the state will result in a tenfold price, which will have to be paid 100% in the long run.
The Solar Energy Association of Ukraine opposes the introduction of excise duty on electricity at a “green” tariff and has also repeatedly highlighted the negative consequences of its introduction for the development of the renewable energy market. However, the deputies have a chance to prevent this, because the consolidated position of the business – before the second reading, this rule should be removed from the bill.