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Plastic taxes are part of the ‘new taxes’ era

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Alexis De Méyère and Elise Hogge of PwC Belgium consider the approach of several European jurisdictions to reducing packaging waste through economic measures, and the ensuing challenges and opportunities for businesses.

Taxes on plastics are not new. Many jurisdictions have begun to levy a tax or contribution on industries to encourage a reduction of packaging waste and to help to balance the government's budget. This was a simple application of the ‘polluter pays principle’.

Under the impetus of the European Green Deal, the EU decided to implement a single national contribution on the amount of unrecycled plastic packaging waste from January 1 2021. The game changer here is that the EU sees this contribution as a source of revenue for its 2021 27 budget.

The game changer resides in the lack of harmonisation on the continent, while the Single Market – and its highly integrated supply chain – requires a certain level of business rationale. The divergence in the different rules come – and will continue to come – from the fact that each member state (MS) has to contribute its plastic levy to the EU budget and each MS designs its regulation(s) to capture the underlying taxes and contributions for market players and industries. It results in different scopes of taxes, different taxpayers definitions (jointly with the liabilities), different exemption methods, different compliance cycles, and different rates, just to name a few.

The objective of a reduction in plastic packaging waste is essential because plastic has negative consequences on ecosystems and biodiversity. This policy could also contribute positively in the reduction of waste at source and hence encourage the recycling industries and circular economies. With a tax on plastic production, the aims are to:

  • Increase the amount of end-of-life plastics recycled; and

  • Encourage companies to invest in more sustainable manufacturing processes in a greener ecosystem.

European snapshot of tax measures

Driven by the European Commission, the aforementioned EU plastic levy sets forth an amount of €800 (£850) per tonne based on the amount of plastic packaging placed on its own national markets. For this reason, one can expect each MS to take action on a plastic tax.

Next to the EU levy, the UK led the way in introducing a plastic packaging tax (PPT) that came into force on April 1 2022. It applies at a rate of £200 per tonne on plastic packaging with less than 30% recycled plastic that is manufactured or imported into the UK (including packaging on goods that are imported).

Spain also approved a tax on the manufacturing and importation of non-reusable plastic packaging at a rate of €450 per tonne that will enter into force as of January 1 2023.

Italy will also introduce a tax of €450 per tonne on virgin plastic used in the manufacturing or importation of single-use plastic products but it is suspended for 2023 until further notice.

Poland, Germany, and Sweden have announced that they will implement new plastic-related legislation soon.

In parallel, other policy measures have been implemented across the member states, such as extended producer responsibility (EPR) fees, a ban on single-use plastics, and new deposit-return systems. In this context, Belgium is likely to integrate the EU plastic levy into existing EPR fees to pass it on to packaging manufacturers, retailers, and users.

The challenges ahead

For businesses, the number of challenges ahead are tremendous. Here are some open questions for management to address:

  • How will consumers and producers respond to the imposition?

  • How elastic is the demand?

  • What is the actual incidence of the tax?

  • What is the level of substitutability of the goods produced?

But where does the tax function stand? The challenges should not be underestimated.

The first consideration is whether the tax function should be simply involved in, responsible for, and/or accountable for plastic taxes. Then comes the obvious question of resources; for example, people, budgets, and technology.

The second point is data. In some sectors, assuming that a multinational company may be subject to more than 30 plastic taxes worldwide, the data needed to run the compliance cycle could be much more burdensome than the complexity of the pillar two calculations.

The third challenge is the management of tax compliance. For example, the UK PPT requires the filing of quarterly PPT returns.

The fourth perspective to consider will be the need to capture plastic taxes properly in a highly integrated business model, and one might ask whether a European company operating branches in the EU might not be more efficient in the future.

The final dimension relevant to the tax function relates to the tax transparency and governance agenda. In addition to potentially sensitive information on a value chain, it is possible to envisage a conundrum whereby a multinational enterprise could have an interest in reporting plastic taxes to reveal a higher contribution to society, even though the taxes are derived from quantifiable pollution.

Furthermore, the interplay of all plastic taxes in highly integrated business models will lead to double taxation, and the question will arise as to whether this double taxation could also be reported externally.

Why does it matter?

With changing regulations, consumer trends, and business needs, more resources and investment will be required to scale up solutions to address the world's overflow of plastic waste. It is important for businesses, especially at the procurement level, to identify where the tax will be levied, on what it will be levied, and who will bear the final cost.

There is an increasing opportunity for companies to embark on the next wave of transition. Businesses that develop their internal ecosystem in which the tax and sustainability teams are well connected will be in a better position to respond to future developments.

For investors seeking returns beyond financial performance, this is also a unique opportunity to become an early investor in an emerging sector that will create significant social value by reshaping the way we all manage waste.

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