Russia Looks At Tax Incentivizing Eco-Friendly Auto Manufacturing

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  • Transport Tax to be abolished or reduced
  • LNG & Electric vehicles to be targeted
  • Production of green vehicles to double in three years 

Russia wants to abolish the transport tax on environmentally friendly cars, with the Ministry of Economics proposing to give such incentives to owners of cars running on LNG. The country has some of the largest LNG reserves in the world.

The proposals call for transport tax for the owners of environmentally friendly vehicles, and specifically LNG-powered vehicles, to be canceled or reduced throughout the country. This measure is being worked out by the Ministry of Economic Development and Trade and will be submitted for consideration in a comprehensive plan to improve the energy efficiency of the Russian economy. The ministry is also exploring the possibility of paying subsidies to buyers of cars with an engine capacity of up to 1 liter and is also working on various incentives for manufacturers of green cars.

The innovations will help improve the environmental situation in the country, and usher in opportunities for foreign invested eco-friendly vehicles. China’s FAW announced a Joint Venture with Italy’s Silk EV to produce an electric car in Modena last week, while Elon Musk’s Tesla has invested in a manufacturing facility in India.

Supporting Measures

Such a measure is a way to improve the environmental situation in the country and reduce emissions of pollutants and greenhouse gases from vehicles into the atmosphere. This practice already exists in several regions and is now to be proposed at the federal level.

Today, the amount of transport tax depends on the engine power and the rate set in each specific region. So, in Moscow for cars up to 100 hp. the rate is 12 rubles from 1 hp, from 100 to 125 hp. – 25 rubles, from 125 to 150 hp – 35 rubles and so on up to 150 rubles for a car with an engine with a power of more than 250 hp. The tax is paid once a year.

The Ministry of Economic Development also proposes to provide subsidies to buyers of cars with an engine capacity of up to 1 liter and is working on opportunities to stimulate manufacturers of environmentally friendly cars. The department did not specify the exact list of measures.

“Adequate tax policy and the introduction of financial incentives to buy cars with low specific fuel consumption or low greenhouse gas emissions can help change the behavior of consumers and vehicle manufacturers,” said the Ministry of Economics.

The possibility of including these measures in the department’s comprehensive plan to improve the energy efficiency of the Russian economy is being considered, he said. The ministry will prepare a document and send it for approval to the government by the end of the second quarter of 2021. The activities of the plan will be worked out together with the specialized community. Their implementation will help reduce greenhouse gases by saving energy resources.

The above measures in the transport industry by 2030 will reduce the consumption of equivalent fuel by 11 million tons per year (a unit used to compare different types of fuel). Today, the consumption of gasoline and diesel by road in Russia is about 70 million tons per year, and these new support measures should have a positive effect on the development of environmentally friendly transport.

A transport tax concession of 50% for organizations and individual entrepreneurs is provided in the Nizhny Novgorod region, for individuals, while in the Novosibirsk region, transport companies pay a fee of 10% of the established rates. In the Republic of Tatarstan, the state program for the development of the gas engine fuel market has been approved, which provides for both tax benefits and compensation for purchased equipment.

Various tax breaks for owners of NGVs also apply in St. Petersburg and the Leningrad Region. They are also in Vladimir, Kaluga, Kostroma, Kaliningrad, Kirov, Kemerovo, Kurgan, Samara, Sakhalin, Smolensk, and Chelyabinsk regions, as well as in the Khanty-Mansi Autonomous Okrug, Adygea, Transbaikalia, Chuvashia and Bashkortostan.

The Russian Ecological Society Chairman, Rashid Ismailov said that “In practice, they have already shown efficiency in the Chelyabinsk region. There is a demand from car owners for the greening of personal vehicles.”

As at July 1, 2020, about 53 million cars were registered in Russia. The current program for the transfer of personal and public transport from gasoline to gas, which started in July 2020, assumes that by 2024 there will be about 274,000 cars in Russia with LNG engines. In comparison: in mid-2020, there were about 155,000, meaning production will effectively double in the next three years.

The Ministry of Energy has said that in 2021 the budget provides for federal subsidies in the amount of 3.77 billion rubles for the construction of 134 methane filling stations, as well as 700 million rubles for the re-equipment of cars and to provide adequate facilities.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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