Vehicle recycling fee

Kazakhstan's Vehicle Scrap Policy Sparks Debate as Old Car Numbers Soar

It has been several years since the issue of the vehicle recycling fee was first raised in our country. In May, a petition was published on the epetition.kz website calling for the removal of this fee. It garnered 50,125 signatures within a month. According to the new law, such petitions must now be considered by state authorities. The society holds divided opinions on the vehicle recycling fee. One side argues for its complete removal, while the other believes the fee should support domestic car manufacturers.

First online petition

The first legal petition of this kind underscores an important trend. In his State of the Nation Address on September 1, 2020, President Kassym-Jomart Tokayev highlighted the transformative potential of social media and proposed an innovative mechanism to harness this power for national reforms.

"Through social media, problems that cannot be solved locally are made known throughout the country," President Tokayev stated, emphasizing how digital platforms amplify local issues to a national audience, rallying collective support, and prompting action.

Recognizing the need for a structured approach to citizen engagement, President Tokayev called for the creation of a single legitimate institution for online petitions. He envisioned a centralized platform where citizens could initiate reforms and proposals, ensuring that every petition receives due attention and has the potential to drive real change.

"We need to create a single legitimate institution for online petitions where citizens can initiate reforms and proposals," he continued. "Such a mechanism must be completely protected from any manipulation."

To achieve this vision, President Tokayev underscored the importance of robust security measures to safeguard the integrity of the petition process. Ensuring the authenticity of each signature and preventing exploitation by false signatures, bots, or other malicious activities are critical to the success of this initiative.

The relevant institutions have been preparing for this responsibility for some time. Although the draft law on online petitions was submitted to Parliament in 2021, it was only sent to the President for signature in 2023.

As a result, it is now established by law that the government must consider petitions that receive more than 50 thousand votes. This is the first petition related to the vehicle recycling fee published on the mentioned site and sent to the appropriate state institution for consideration. It serves as another example of the implementation of the concept of the "Listening State," opening avenues for citizens to initiate reforms and provide suggestions.

What is scrap collection?

A disposal fee, as defined in Article 286 of the Environmental Code, refers to a payment made for the organization of waste collection, transportation, preparation for re-use, recycling, decontamination, and/or disposal. In simpler terms, it's the fee you pay to ensure that waste is properly handled and recycled, thereby safeguarding the environment.

In Kazakhstan, the vehicle recycling fee was introduced in 2015. This fee establishes a baseline payment for cars imported from abroad, calculated as 50 times the monthly calculation indicator, with adjustments based on engine size. For instance, cars with engines under 1000 cubic centimeters are subject to a coefficient of 3.

To illustrate with an example: In 2016, the monthly calculation index was 2,121 tenge. Thus, the minimum disposal fee was set at 318,150 tenge. On the other hand, vehicles with engines exceeding 3001 cubic centimeters would face a higher fee, such as 2,439,150 tenge. As the monthly calculation index increases annually, by 2021, the maximum fee had risen to 3,354,550 tenge.

Following protests in January, President K. Tokayev ordered a review of the vehicle recycling fee issue. Subsequently, the coefficient volume was halved in 2022. Therefore, the minimum disposal fee decreased to 229,725 tenge, while the maximum fee became 1,761,225 tenge. Considering the latest increase in the monthly calculation index, this amount remains significant.

The activist group involved in petitioning for the removal of the vehicle recycling fee faced challenges during negotiations. The initial meeting of the working group was postponed because the group refused to comply with a rule requiring visitors to leave their mobile phones at the entrance of the ministry building.

According to information from the Ministry of Industry and Construction, the working group includes parliamentary deputies, vice ministers from various departments including industry, ecology, finance, agriculture, digital development, culture, and information. It also comprises representatives from public and expert associations, industry experts, and named citizens advocating for the elimination of the disposal fee.

The government maintains a firm stance against removing the vehicle recycling fee. Minister Kanat Sharlapaev of Industry and Construction argues that these fees contribute to funding for producing car wheels, tires, and plastic auto parts. Protecting the interests of domestic enterprises is emphasized as a crucial aspect of this policy.

This summarizes the current situation regarding the vehicle recycling fee in Kazakhstan, highlighting its purpose, implementation, recent developments, and governmental perspectives.

Economics impact

In a recent interview, Kazakh First Deputy Prime Minister Roman Sklyar discussed the complexities and benefits of the country's scrap collection policy, shedding light on its economic and environmental impacts.

Sklyar explained that scrap collection serves as an indirect tax, highlighting its evolution over time. "Previously, our country imposed a 30% customs duty on cars, which was later reduced to 15% after joining the World Trade Organization (WTO). However, as part of the Eurasian Economic Union (EAEU) with Russia and Belarus, which introduced a recycling fee, we adopted a similar 15% recycling fee," he stated.

Initially managed by a private operator under the Environmental Code, the recycling fee's administration shifted in 2022 to Zhassyl Damu, a state-owned joint-stock company. This change aims to ensure the funds are used to support environmental programs. "The money goes towards implementing environmental programs, building waste recycling plants, and developing forest conservation, which significantly impacts the environmental situation," Sklyar noted.

He also emphasized the economic benefits derived from the recycling fee, explaining that funds are allocated to the Industrial Development Fund (IDF) to provide cheap loans, encouraging the purchase of domestically produced cars and stimulating the economy without compromising the environment. "For example, we allocated 100 billion tenge (US$223 million) to the IDF," he said.

Addressing critics who argue that only car manufacturers benefit from the scrap collection, Sklyar highlighted the broader economic impact. "Investments in local production create jobs, increase tax revenues, and foster skill development, benefiting various sectors of the economy," he argued.

Sklyar clarified that all economic sectors receive some form of tariff, non-tariff, investment, institutional, and other preferences. Specifically, in the automotive industry, companies benefit from exemptions such as VAT exemptions and free economic zones. "It is impossible to get leading large automotive companies to build plants and produce equipment without such a barrier," he explained.

He cited examples of international and domestic investments in Kazakhstan's automotive sector, such as a Korean company's plant for 70,000 cars in Kostanai and entrepreneur Nurlan Smagulov's plant for 90,000 multi-brand Chinese cars by small-scale assembly. "China practically does not import cars, which are subject to giant customs duties, only domestic production. If a company is interested in a large market, it must set up production there," Sklyar noted, comparing Kazakhstan's strategies to China's.

Sklyar reassured that funds from the recycling fee are transparently allocated, with Zhassyl Damu annually reporting on their usage. These funds support state and public needs and facilitate the development of local production and related industries. "Our goal is to increase localization and extract maximum benefit for the country," he said, citing initiatives like Hyundai Trans Kazakhstan and Daewoo Bus Kazakhstan.

In 2023, Kazakh car manufacturers produced 142,000 cars, with purchasers not bearing the recycling fee burden. "These initiatives stimulate production and economic growth across various sectors, ensuring that every citizen benefits from industrial progress," Sklyar concluded.

This interview highlights the delicate balance Kazakhstan seeks to maintain between fostering economic growth and protecting the environment, ensuring that the benefits of scrap collection are felt across the entire nation.

 

What do the initiators want?

The goal of the initiative group advocating for the removal of scrap collection fees is to completely eliminate the vehicle disposal fee and initial registration costs, or to revise the scrap collection system. In discussions, there's also consideration about exempting agricultural machinery from waste taxes. But how reasonable are these opinions?

Firstly, the disposal fee and initial registration charges apply solely to vehicles imported from abroad. The primary objective is to incentivize the purchase of new cars only if they are imported. Vehicles produced in Kazakhstan are exempt from these scrapping taxes.

Secondly, the current policy on vehicle recycling fees plays a crucial role in the development of the automotive assembly industry. Funds collected contribute to financing domestic industries and promote local production growth. Since the introduction of the vehicle recycling fee in Kazakhstan, foreign investors have shown interest in investing in the country. For example, from 2018 to 2022, 56.9 billion tenge were invested in the auto industry. Three large-scale projects are planned for the next two years, aiming to increase the annual production of automobiles to 240,000 units. By 2025, 10 projects are expected to be completed, further boosting domestic car production and potentially reducing vehicle prices through increased local supply of materials.

It's also noteworthy that many individuals are employed in car assembly today. Permanent positions in automobile manufacturing enterprises number 6,000, with over 10,000 employed in related industries. If planned projects come to fruition, direct employment could rise to 13,000.

Similarly, car manufacturers contribute significantly to national tax revenues. From 2018 to 2022, they paid 68.5 billion tenge in taxes, with last year's contribution amounting to 47.5 billion tenge. Thus, total tax contributions since 2018 have reached 116 billion tenge.

Injecting momentum into the car manufacturing market, Kazakhstan has received 691.8 billion tenge from vehicle recycling fees since their introduction in 2015. Half of these funds are allocated to support domestic production. This state support has revitalized the domestic car assembly market.

For instance, in 2015, 97.4 thousand new automobiles were sold in Kazakhstan, with only 16.7 thousand (15%) produced locally. In the past year, 198 thousand new cars were sold, over 70% of which were domestically produced. In total, 149,000 cars were manufactured in Kazakhstan last year, all exempt from scrapping fees, with an initial registration fee of only 923 tenge. This underscores the positive growth in domestic automobile production.

Looking ahead, car production is expected to increase significantly in the coming decade. For example, production exceeded 10,000 cars in 2016, rising to 148,000 cars last year. Consequently, domestic production now constitutes 71% of the total vehicle sales market.

The initiative group proposing the elimination of waste charges also seeks to exempt agricultural machinery from vehicle recycling fees. Currently, only three out of 30 types of imported agricultural equipment are subject to scrapping fees. Moreover, a portion of the disposal fees is used to lease agricultural machinery. However, Kazakhstan is progressively focusing on replacing these imports with domestic versions.

 

Old cars, new issues...

One of the primary goals of introducing the vehicle recycling fee was to reduce the number of old cars in the country, effectively limiting the influx of new vehicles. Recently, Senate deputies addressed Prime Minister Olzhas Bektenov, describing Kazakhstan as a "car junkyard" due to the accumulation of scrap vehicles. According to the deputies, the average age of the passenger car fleet in the country has increased from 12 to 21 years over the past 8 years. In response, the senators proposed a reduction in the vehicle recycling fee.

The deputies' concerns are not unfounded. Despite positive developments in the domestic car manufacturing market, the average age of vehicles in Kazakhstan continues to rise. According to the National Bureau of Statistics, there are currently 4.7 million passenger cars in the country. Among these, 294 thousand can be considered new, having been manufactured within the past three years. Additionally, 590 thousand cars have been on the roads for 3 to 7 years, while another 610 thousand were produced between 7 to 10 years ago. 1.1 million vehicles are between 10 to 20 years old, and 2.1 million are over twenty years old.

By comparison, the average age of passenger cars in Luxembourg is 5.5 years, while Slovakia has the oldest cars in the European Union with an average age of 11.34 years.

It is important to note that the increase in the average age of cars in Kazakhstan is not due to the vehicle recycling fee itself, but rather the potential consequences of its removal. For example, in 2022, President Tokayev legalized unregistered vehicles in the country, leading to an increase in older vehicles. Moreover, lax border controls facilitate the entry of foreign vehicles into Kazakhstan, contributing further to the aging of the vehicle fleet.

Between 2016 and 2023, Kazakhstan initially registered 817 thousand new light vehicles and 386 thousand used cars (with 300 thousand being legalized). This trend underscores the concern that abolishing the disposal fee and the first registration fee could lead to an influx of older vehicles that are no longer usable elsewhere, exacerbating the issue.

In the United States and Canada, vehicle recycle fees vary by state or province. These fees are typically included in the initial purchase price of a vehicle or are charged when registering a vehicle for the first time. The funds collected are used to support recycling facilities that dismantle and process ELVs, ensuring that hazardous materials such as batteries, oils, and fluids are safely disposed of or recycled. This not only prevents environmental contamination but also promotes the reuse of valuable metals and materials.

Vehicle Recycle Fees: Examples by Country

In fact, the vehicle recycling fee exists in several countries around the world. For example, in Russia, the minimum basic scrap collection fee is 20,000 rubles. This amount is multiplied by a coefficient determined by the size and age of the vehicle's engine. Uzbekistan also introduced a vehicle recycling fee in 2020.

Belarus has had a vehicle recycling fee for several years, which varies not only by engine size but also by the age of the car. Unlike Russia and Uzbekistan, Belarus categorizes vehicles into three groups based on age: up to three years old, 3-7 years old, and over 7 years old, each with its own coefficient.

In the United States, the approach to vehicle recycling fees varies by state. For example, California implements the California Tire Fee, which is part of the Vehicle License Fee paid annually. This fee helps fund tire recycling programs and other environmental initiatives related to vehicle waste management. Additionally, some states have specific fees or taxes on new vehicle purchases that contribute to funding recycling programs for end-of-life vehicles (ELVs).

Europe has been at the forefront of implementing strict regulations regarding vehicle recycling. The European Union (EU) mandates that all member states adhere to guidelines set forth in the End-of-Life Vehicles Directive. This directive requires automobile manufacturers to take responsibility for the proper disposal of vehicles they produce. As a result, when a vehicle is purchased, a recycling fee is often included to cover the cost of its eventual dismantling and recycling. This approach ensures that a significant portion of each vehicle is recycled, contributing to resource conservation and minimizing waste.

Within the European Union, vehicle recycle fees are governed by the End-of-Life Vehicles Directive. This directive mandates that automakers take responsibility for the safe disposal and recycling of vehicles they produce. When purchasing a new vehicle in an EU member state, consumers pay a recycling fee, often included in the vehicle's purchase price, which covers the cost of recycling the vehicle at the end of its life. Countries like Germany have well-established systems where manufacturers are required to ensure a certain percentage of materials from ELVs are recycled or reused, promoting a circular economy approach.

In countries like Japan and South Korea, vehicle recycling is similarly regulated to manage the environmental impact of automotive waste. Japan, for example, implements a recycling fee system where consumers pay a fee upon purchasing a vehicle, which is used to fund the dismantling and recycling of ELVs. This system aims to achieve high recycling rates and reduce the environmental burden associated with end-of-life vehicles.

Japan has a comprehensive vehicle recycling system under the Automobile Recycling Law. When purchasing a new vehicle, consumers pay a recycling fee, which finances the proper dismantling and recycling of ELVs. This system ensures that valuable materials such as metals are recovered, and hazardous substances are safely disposed of. Japan's approach aims to achieve high recycling rates and minimize the environmental impact of automotive waste.

South Korea also has regulations in place to manage vehicle recycling. The Act on Resource Circulation of Electrical and Electronic Equipment and Vehicles mandates manufacturers to establish collection and recycling systems for end-of-life vehicles. Consumers pay a recycling fee when purchasing new vehicles, which supports the recycling infrastructure and ensures proper disposal of automotive waste. South Korea's system emphasizes resource conservation and environmental protection through effective vehicle recycling practices.

Australia and New Zealand also have mechanisms in place to manage vehicle recycling. In Australia, for instance, there are various state-specific programs that charge a levy on new vehicle purchases, which goes towards funding ELV recycling initiatives. This ensures that old vehicles are properly disposed of and recycled, rather than becoming sources of environmental pollution.

In Australia, various states have implemented schemes to manage vehicle recycling. For instance, Victoria has the End-of-Life Vehicle Recycling Program, where a levy is charged on new vehicle purchases to fund the recycling of ELVs. This levy supports recycling facilities and processes that dismantle vehicles and recover materials for reuse. Australia's approach ensures that old vehicles are responsibly managed and recycled, contributing to environmental sustainability.

The global implementation of vehicle recycle fees reflects a shared commitment to environmental stewardship and sustainable development. By imposing these fees, governments and regulatory bodies encourage responsible automotive manufacturing and consumption practices while minimizing the ecological footprint of the automobile industry. As awareness of environmental issues continues to grow, these initiatives play a vital role in shaping a more sustainable future for generations to come. Whether in North America, Europe, Asia, or Oceania, vehicle recycle fees stand as a testament to the importance of proactive environmental policy in the automotive sector.

If Kazakhstan completely remove the vehicle recycling fee and the first registration fee, then it is clear that old cars from countries such as Russia and Armenia will flow to Kazakhstan. Therefore, it is clear that such a system is needed.

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