The government’s green taxation policies are steering taxpayers into uncharted waters, imposing levies under the pretext of a green transition while leaving limited alternatives for reducing carbon emissions in transportation.

As Brief reports, starting in May, fuel prices will rise due to the introduction of a carbon tax. The levy will apply to gasoline, diesel used as a motor fuel, certain categories of heating oil (kerosene), and liquefied petroleum gas (LPG). The tax on unleaded gasoline and diesel will start at 5 cents per liter in 2024, increasing to 7 cents in 2026 and 10 cents in 2027.

Notably, the carbon tax will be imposed on energy products even if they are exempt from excise duties, and VAT will be applied to the taxable value of these products. The revenue generated is expected to fund environmental initiatives and support sustainable tourism practices.

A second phase of the government’s green taxation plan involves the introduction of a tourism accommodation tax. This will be a daily charge of €2.50 per guest for hotel stays, applicable to all residents using rooms, lodgings, or other accommodation facilities in Cyprus. The tax will not be subject to VAT.

Additionally, water management fees are set to increase as part of policies aimed at water conservation. The rising cost of potable water is intended to encourage more responsible consumption and address water scarcity issues. The government plans to raise water prices by 1 cent per cubic meter.

Another measure under review is a landfill tax on municipal waste disposal, which is expected to start at €35 per ton and increase by €5 annually until it reaches a maximum of €70 per ton.

Households already pay an annual fee for waste collection, which in some municipalities will rise following their consolidation.

According to the Ministry of Finance, which has assessed available data with concern, the effectiveness of green taxes remains questionable. Their success largely depends on the efficiency of public transportation systems, which in Cyprus remain underdeveloped.

Several studies have raised doubts about the impact of these taxes and urged a more thorough evaluation before their implementation, presenting strong counterarguments:

1. Cyprus lacks a robust public transport system, casting doubt on the effectiveness of environmental taxes related to fuel.

2. Financially vulnerable consumers will face increased economic burdens without viable alternatives, leading to disproportionate impacts.

3. Implementing green taxes without an improved public transport network raises concerns about social fairness, as lower-income groups will be disproportionately affected, undermining the taxes' environmental goals.

The International Monetary Fund (IMF) has advised Cyprus to begin with a carbon tax of 5 cents per liter in 2024 and gradually raise it to 25 cents per liter by 2033. This increase corresponds to a carbon tax of €20 per ton of CO₂ equivalent, rising to €100 per ton.

The IMF also acknowledges that water, waste, and tourism taxes could indirectly contribute to reducing emissions. While the taxes are expected to generate additional revenue, they may also accelerate the erosion of the tax base. Estimates suggest that the new taxes could generate 0.1% to 0.2% of GDP annually by 2025, increasing to 0.4% by 2028, with total revenue from higher carbon tax rates reaching 0.5% of GDP.

However, the University of Cyprus’ Economics Research Center estimates that the financial burden on citizens will amount to just €121 per year.

The green tax reform will significantly impact key sectors of the economy, including energy production, road transport, aviation, shipping, and construction.