Economic Instruments - Charges and taxes

Natural Resources Tax (NRT), Latvia

Background

The use of economic instruments in Latvia is based on the Law of Natural Resource Tax (1995) that established a mixed policy approach with a concentration on instruments that achieve established goals and raise revenues for environmental spending.  The system entails a permit/charge/non-compliance fee system in air, water, waste and natural resource extraction sectors (UNEP).  Environmental investment is rewarded with charge waivers with the aim of encouraging further investment (REC, 1999).

 

Introduced

September 1995

 

Aims

The aim of the specialised Natural Resource Tax (NRT) is to protect the environment from abuse of its natural resources and reduce pollution, through restricting manufacture and sale of production which is deemed to pollute the environment.  As well as promoting implementation of new and improved technology reducing pollution in the environment and supporting the strategy of sustainable development in the economy and generating the funding necessary for environment protection measures (UNEP, 2004). 

 

Design

Natural resource tax is imposed on natural resources extracted as a result of:

  • any commercial activity (gravel, peat, water etc.);
  • environment pollution - waste disposal, emissions into air and water;
  • goods and products that are harmful to the environment (oils, batteries, ozone depleting products, tires, IT and electronic products);
  • packaging of goods;
  • radioactive substances
  • (since October 2004) vehicles (UNEP, 2004 and Brizga, 2005).

The charge is applicable to legal entities that, according to legislation, are required to obtain permits for the extraction of natural resources (Speck et al., 2006).

 

Tax Rates

A basic tax rate is determined by the different usages of the natural resources (UNEP, 2004).  For extraction of natural resources over the amounts specified by the limits (or licences)  - the basic tax rate plus an additional tax equal to three times the basic rate is applied.  Fines for undeclared (nor recorded) or unlawful (without licence) extraction of natural resources can be as much as 12 times the basic tax rate for all amounts extracted (Nordic Council, 2006: 139). 

The tax rate was introduced in 1995, since then it has been amended numerous times (19.12.1996, 06.04.2000 and 20.12.2001 and 07.04.2004) in line with government regulation (UNEP, 2004). 

The taxes are levied on the amount of the natural resource extracted rather than on the amount actually used, resource users are motivated to utilise each unit of extracted material economically during the entire production/utilisation cycle and to minimise losses (Speck et al., 2006).

 

Exemptions

Tax allowances, alleviation and refunds are given for projects involved in environmental protection and projects that aim to reduce environmental pollution.  Enterprises that are involved with voluntary packaging waste management programmes receive tax exemptions and tax refunds are available for the recycling of goods or products harmful for the environment. Charge waivers act as an interest free loan for pollution control projects that are co-financed by enterprise (UNEP, 2004). If the project implementation is successful and sustainable pollution reduction is achieved, the loan can be converted into a direct grant (REC, 1999).

Product charges on packaging materials, tires and batteries are designed with refund rates to encourage reusing and recycling of goods and products (REC, 1999). 

 

Revenue Allocation

Forty percent of tax payments received from NRT were transferred to the state budget for state environmental protection until 1 January 2004. After this date, the revenue was amalgamated into the general state budget (administered by the Latvian Environment Protection Fund). The remaining 60% is transferred to local government for environmental protection budgets (UNEP, 2004).

 

Performance

Natural resource tax revenue equalled 0.11% of GDP in 2004 (Brizga, 2005).  Tax on cars accounted for more than half of the natural resource tax revenues (0.06% of GDP)

Limited analysis has been carried out on the effectiveness of natural resource taxes in Latvia.  In comparison to other Western EU countries, it seems that the charge rates are well below levels that would reflect true environmental costs (REC, 1999). 

 

References

Brizga, Janis, 2005, ECO-taxes in Latvia, Presentation at Green Budget Germany Conference on Eco-taxes in the new EU Member States, October 2005, Berlin.

Speck et al., 2006, The Use of Economic Instruments in Nordic and Baltic Environmental Policy 2001-2005, TemaNord 2006:525, National Environmental Research Institute, Denmark.

Regional Environmental Center for Central and Eastern Europe (REC), 1999, Sourcebook on Economic Instruments for Environmental Policy in Central and Eastern Europe- A Regional Analysis, Hungary.  Available at:

 www.rec.org/REC/Programs/Sofiainitatives/ecoinstruments/sourcebook.html

United Nations Environment Programme (UNEP), 2004, Background report: Current Status and recent changes in consumption and production patterns in Latvia, Available at: http://www.unep.ch/scoe/archive/baltic/Background%20report-Latvia_Draft_rev15Jun04.doc

 

 

Useful Websites

http://www.bef.lv/data/file/final_minutes.pdf

http://www.seit.ee/files/Latvia.pdf

http://www.unece.org/env/epr/studies/latvia/chapter03.pdf

http://enrin.grida.no/htmls/latvia/par/politika/finansejums.htm

http://www.rec.org/REC/Programs/SofiaInitiatives/EcoInstruments/Database/siei_LATVIA.PDF

Posted by admin on 13/06/08

0 Votes

0 Comments

Add Comment