The Case For and Against the Recycling Fee

I would like to share my views on the recycling fee (utilsbor). They reflect my own subjective perspective. There should be a sound discussion that weighs all the arguments for and against. We need to look at the situation much more broadly, and not only from the standpoint of industrial development.

Let us go through the arguments one by one.

I will begin with the arguments in favor, and with what needs to be done to make each of them even more compelling. I will also list them in order of importance, as I see it:

The most important argument concerns urban planning and the environment. Whatever we may say, most cars are concentrated in large cities. Drivers need to be pushed out of them, car ownership made expensive and public transport developed. What is happening now in Astana and Almaty shows that, in this respect, things are not yet so rosy for us. Elsewhere the problem is solved with expensive parking, prohibitive duties on cars and well-developed public transport. We cannot escape the global trend toward urbanization, so, following it, we should make car ownership expensive and direct most of the revenue from the recycling fee to the development of public transport. Many developed countries, such as Singapore, Denmark, Iceland, Sweden and Finland, levy huge car registration fees for precisely this purpose. The car industry is hardly their top priority, yet owning a car in these countries is extremely expensive, while public transport is very well developed.

Investment in the automotive sector over the past 10 years has been very large, and we also need to watch international changes and how markets are shifting. We are now in a situation where the Russian market has run into problems with car production inside Russia (and I think this is only the beginning). Most Western manufacturers have closed their Russian plants, and Chinese companies are now increasingly squeezing AvtoVAZ in its home market. This gives us a unique chance to take a share of that market by attracting foreign companies that are relocating production. If I am not mistaken, Kia is the first such project, having started construction in Kostanay. This significantly changes the outlook for the regional market. Here the issue is one for the state: within the EAEU it must remove barriers to exports to Russia and pursue an anti-sanctions policy so that this scenario can be realized. We are in a better position than, for example, Uzbekistan, which built its car industry on the strength of its domestic market. At the very least, we do not have to pay duties to export to Russia, and private individuals can import cars into Russia with a minimal recycling fee (I think we could consider this experience). Moreover, the car industry has become highly standardized, and you will find many identical parts and systems installed in different cars. This makes assembly simpler and more profitable.

The recycling fee is paid only on cars with internal combustion engines (ICE), while electric cars are exempt from both the fee and import duties, which changes the overall landscape of car ownership. Electricity is much cheaper than gasoline per kilometer traveled. A full-fledged electric car system requires a separate program to build the necessary infrastructure, and part of the revenue from the recycling fee should go toward it. This is not just a global trend; it also makes economic sense, because owning an electric car is much cheaper. There are no taxes, and maintenance costs far less.

Now let us turn to the downsides of the recycling fee and of prohibitive registration charges:

The recycling fee puts cars out of reach for some citizens. In the low-price segment it can account for 50% of the cost. This makes it hard for rural residents to buy a car or other agricultural machinery, which matters a great deal for their development. Our distances are vast, and rural residents need cars both to get around and to run their farms. The solution lies in changing the design of the fee itself. In Russia, for example, every citizen may import one car a year at a preferential rate for private use. I think this is a reasonable way to address the problem. The registration fee should also be differentiated by region. The recycling fee on agricultural machinery should be reimbursed through subsidies to farms and limited liability partnerships (TOOs) in the agricultural sector.

There is no transparency in how the recycling fee is distributed. I think the main problem is that many people believe the money from the fee goes to car manufacturers. That is not quite the case, and what is needed here is transparency and a system for earmarking the proceeds. I believe the money from the recycling fee should go to developing public transport (eco-friendly buses and trolleybuses, trams, the metro, light rail transit and suburban railways) and to building infrastructure for electric cars, which means running power lines along all the main highways.

Domestic cars enjoy an uncompetitive advantage thanks to prohibitive duties and fees. Car import duties are set at the EAEU level, so we cannot change them. The recycling fee, by contrast, is a domestic charge within Kazakhstan. As I said earlier, I think we should change its design and allow every person to import one car for private use at a reduced recycling fee. This should apply only to the low-price segment, and if the car is resold within one year, the fee would be payable in full. In the premium segment the fee makes up a smaller share of the price and does not give Kazakhstani manufacturers much of an advantage.

I believe we should focus more on changing the design of the recycling fee and other charges, making them more flexible and capable of addressing every aspect of our lives, whether it is industrial development, environmental protection or making cars affordable for the public. At present, the design of the recycling fee and the way its proceeds are used are very simplistic, and they do not fully address the issues raised above.