You're reading: New vehicle recycling tax likely to result in price hikes

Importers of cars in Ukraine have new challenges ahead. On July 4 Ukrainian parliament passed two bills, No. 0975 and  No. 0936, in a second reading, the first of which imposes a tax for recycling, or utilizing, transportation vehicles on manufacturers and importers, while the latter establishes the procedure in which it should be done. The bills come on the heels of a special duty on imported passenger cars with 1-2.2 liter petrol engines. 

The bills received 235 and 233 votes, respectively, most of
which came from Party of
Regions and
Communist party members, according to parliament’s voting statistics. If signed
by the President, both will come into force on Sept. 1.

According to
the law introducing the recycling tax, importers will have to pay a
special duty as a part of a customs clearance procedure and manufacturers will have to
pay a tax when selling the
car. The law will not apply to Ukrainian automakers, which
manufacture auto parts and assemble them in country.

The tax rate
depends on the working
condition of an engine’s cylinder and is different for new and used cars,
according to the law. It
starts at Hr 4,730 ($590) for new cars with engines under 1,000 cubic centimeters and
tops at Hr 30,250 ($3,800) for cars with engine sizes above 3,500 cubic centimeters. For used cars the rate is twice as high.

According to the law introducing utilization procedure, only
licensed businesses are supposed to carry out the utilization of vehicles and special outlets
accepting and disassembling the vehicles are to be established in order to
ensure environmental safety in the country.

National
automakers, who have failed to keep up with Western competition
and have seen production slow due to outdated facilities and production
methods, hope the new
tax will give them a much-needed boost. The fall of production of vehicles here in the first five
months of 2013 was 2.5 times year-over-year, the Ukarautoprom association
of manufactures estimated.
By June the association estimated that number to be just 2.2 times, Interfax-Ukraine
reported.

“Automakers
consider the situation in the industry to be critical, and expect that the introduction
of import duties on passenger cars with 1-2.2 liter petrol engines from April
13, 2013 has improved it. They expressed confidence that the introduction of
the recycling tax will additionally influence the automobile production
sector,” reads a July 9 report by Interfax-Ukraine.

Meanwhile
car dealers are worried the laws could lead to a
rise in vehicle
prices.

“I don’t
expect that manufacturers can absorb this amount of money because it’s quite
significant,” says Robert Kulewicz, Ford Motor Company brand director for
Winner Ford in Ukraine.  “So I would expect the prices to rise, absolutely,”
he says.

He expects
the prices to grow proportionally to the taxation rates. “The minimum the prices
will go up is about Hr 5,000 (for cars with engine under 1,000 cubic centimeters) and up to
Hr 30,000 (for cars with engine above 3,000 cubic centimeters),” he says.

The All-Ukrainian
Association of Car Importers and Dealers (VAAID) has also expressed
concerns about the laws. On July 5 it asked President Viktor Yanukovych to
veto the laws but haven’t received a response  from him. Nevertheless, members hope he will at least send it back
to the parliament for revision, according to Oleg Nazarenko, VAAID’s head, who
is outraged with the law.

“There is no
tax like this in any country in the world, except for Russia,” Nazarenko says. “Everywhere
in the world people are paid for utilizing cars. They junk a car and get
compensation for that, while Ukrainians are offered to get rid of cars for free,”
he says.

Kulewicz
would also agree with Nazarenko as he sees “no way to manage” the new tax. “We
agree with VAAID that it’s not the right decision. We are absolutely on the
same path with them,” Kulewicz says. “Increasing taxation on cars in this way
is very difficult to understand what benefit it could bring to the customer,”
he says.

Kyiv Post staff writer Anastasia
Forina can be reached at
[email protected]