Finance ministry starts public consultation on windfall taxes

The finance ministry on Tuesday initiated a public consultation on two draft bills aiming to tax the windfall profits of producers and suppliers of energy generated from both fossil fuels and renewables.

The two bills are posted on the ministry’s website. Under the first, the state will levy a special fee on the windfall earnings of companies trading in energy generated from renewables; under the second, a ‘special contribution’ will be levied on the excess profits of companies trading in energy generated from crude oil, natural gas, coal and the refinery sector.

The second bill is based on EU Council Regulation 2022/1854 titled ‘On an emergency intervention to address high energy prices’.

The provisions in both bills will be temporary, and relate to taxing any windfall earnings made in 2022 as a result of the global spike in energy prices.

Along with the bills, the finance ministry also uploaded a form where stakeholders can make remarks for the public consultation process. The links are available at https://mof.gov.cy/en/press-office/announcements/1255/?ctype=ar

Regarding the special fee on the excess earnings of RES companies, the amount will be calculated and submitted by the companies themselves, on a form provided by the Tax Commissioner.

Submitting the form will be mandatory, and failure to declare will lead to administrative fines. In addition, if a company fails to declare its windfall earnings, the Tax Commissioner will determine the amount.

The special levy is derived from a formula provided by the finance ministry. The formula is as follows: special levy for 2022 = (profits in 2022/energy sold in 2022) – €0.11 x energy sold in 2022 x 0.9.

The energy sold is expressed in kilowatt-hours. The €0.11 in the formula refers to the 11 cents per kilowatt-hour, the current statutory ‘avoidance cost’ paid to RES traders.

For companies trading in renewables and which began operations in the year 2022, the special levy will be calculated based on the average profit per energy sold in 2021 by the totality of suppliers who were commercially active in 2021.

Last week Finance Minister Constantinos Petrides promised the government would produce legislation taxing the windfall earnings of energy companies, where the proceeds will be used to provide relief to consumers hammered by high energy prices this year.

Main opposition party Akel had tabled two legislative proposals of its own, which Petrides called ineffectual and poorly thought out.