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Russia: Companies must comply with new waste rules or face environmental tax

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Andrey Ermolaev

Many companies this year have fallen within the scope of new regulations on the disposal of consumer products and packaging waste.

This is a direct result of amendments to Federal Law No. 89-FZ of June 24 1998 "On the Production and Consumption of Waste" (as amended on December 29 2015) (the "Law"), which extended the definition of waste disposal and imposed obligations to recycle or pay an environmental duty.

Usually, the law is interpreted to mean that "waste disposal" is the destruction of products by land burial or incineration (for example, when a product's shelf life expires, or when it degrades and ceases to be marketable).

The amended Law provides a new definition, stating that waste disposal is the reprocessing of waste for recycling purposes.

The Law covers both producers and importers. It stipulates that they have to take responsibility for the annual recycling of waste from the use of certain goods (and their packaging) to meet the established recycling targets, which were set by Decree No. 2491-r, dated December 4 2015. Alternatively, they have an obligation to pay an environmental duty calculated on the basis of specific rates, set by Resolution No. 284, dated April 9 2016, if the recycling targets are not met or if, following a decision by the company, no attempt to recycle the waste was made. These amendments, in turn, have introduced new reporting requirements.

The Russian government has published a list of finished goods regulated by Decree No. 1886-r of September 24 2015 "On the List of Finished Goods, including Packaging, to be Recycled at the End of Their Usable Life" (the "List"). After reviewing this List, it becomes clear that companies in almost every sector will have the obligation to carry out recycling procedures or pay an environmental duty.

The List includes automobile manufacturers (obliged to dispose of waste tyres and solid rubber products), pharmaceutical companies, consumer-facing enterprises, retail and light industry sectors, electronics manufacturers, and many more.

Given that the packaging disposal burden lies with producers and importers, the Law affects almost every Russian company.

Law requires further clarity and explanation

Despite the fact that the Law is already in force and the obligation to submit reports became effective from April 1 2016, the legislation has not been finalised yet and requires a number of explanations and clarifications. These primarily relate to the challenges companies face when preparing their regular accounts. Among other things, an amendment has introduced a requirement to specify the name and amount of goods and packaging used when importing goods or introducing them to the market with an accuracy of one kilogram. In most cases, neither customs declarations, nor accounting reports, provide this kind of information.

In addition to this, there are other significant issues that have still not been resolved by legislators.

Although producers and importers bear no responsibility for failures to comply with waste disposal requirements or to submit reports in 2016, this year will still be important for both producers and importers. If the lack of reports or incorrect data result in no liabilities this year, this will fundamentally change in 2017 and thereafter.

Most companies are wrong in believing that they fall within the scope of the Law by identifying waste disposal as the traditional destruction of products and due to their goods being absent from the List, disregarding the packaging in which the goods are imported or introduced to the market.

In our opinion, producers and importers should check to see if their products and packaging are on the List, as well as analyse how many of their products and imports already fall under its scope.

If companies know that their products and packaging come under the List's scope, they should not only develop and set up inventory accounting procedures, but also choose the most convenient and beneficial option for them: whether to take responsibility for the entire recycling procedure, establish associations (unions) for professional disposal, or pay the environmental duty.

Andrey Ermolaev (aermolaev@kpmg.ru)

KPMG in Russia and the CIS

Tel: +7 (495) 937 44 77

Website: www.kpmg.ru

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