Plastic Tax Will Aid EU Recovery

What is the Plastic Tax?

If you didn’t already know, since January 1st, 2021 a new Plastic Tax has been introduced across the European Union. The EU Packaging Levy or Plastic Tax has been in put place as part of the EU COVID-19 recovery fund. The funds raised from this revenue stream will bolster EU budgets between 2021 and 2027. Additionally, it will contribute towards the repayment of EU loans. This is alongside other planned environmental taxes such as the ‘Carbon Border Adjustment Mechanism’ or Carbon Border Tax.

How much will the Plastic Tax be?

According to the Council of Europe, there will be a “national contribution calculated on the weight of non-recycled plastic packaging waste with a call rate of €0.80 per kilogram.” This is roughly equivalent to around €800 per tonne of plastic.

In time, this plastic tax will likely affect every industry and sector. However, from the beginning, it may have significant impacts on retail and consumer goods, as well as chemical and plastic packaging sectors.

How will the Plastic Tax work?

Around €6bn to €8bn is expected to be raised through various environmental taxes. However, what has not yet be determined is how the funds will be gathered. At the moment, it is largely up to each member country’s approach.

Italy, for example, was meant to bring the plastic tax into effect from the 1st July 2021. This was following several delays. It has, however, been yet again postponed until January 2022. When it finally comes into effect the tax would apply to a wide array of products including bottles, polyethylene containers, plastic caps, and tetra packs.

Some believe that this plastic tax will create a circular plastic economy in Europe by 2030. This could potentially off-set the climate impact of plastic production. Due to the levy, a significant increase in plastic recycling is projected over the coming decade from major industry players. As plastic pricing increases and becomes less cost effective, companies should start to choose more environmentally friendly and cost-effective product designs.

There has been speculation that plastic taxes will force businesses to move their production plants and manufacturing facilities to countries with less stringent climate-aware legislation. The EU has anticipated this ‘leak’ and has said hefty import costs will be applied to such products.

What is the Impact of Plastic Tax on Businesses?

It has only been several months since the Plastic Tax has come into effect and the impact has not yet been fully understood. As mentioned above, how the tax will be collected by each Member State and how the tax is implemented, are key factors in determining knock-on effects.

Questions still remain around who is liable to pay the tax? Should it it be the producer of non-recyclable plastic? Or Manufacturers using non-recyclable plastics? It’s unclear. Because of the far-reaching impact of a tax on plastics the final cost will significantly impact consumers. In any case, the entity that ultimately becomes responsible will need to orchestrate a robust compliance and tax assessment to manage this levy.

According to an analytical study conducted on IHS Markit by Kaushik Mitra, it is expected that plastic packaging will increase in cost by “between 20% and 60%.” The report also mentions potential problems, including an “asymmetry in terms of the levy across Europe” as some countries will be exempt from the tax. Additionally, their analysis points to a potential “fragmentation of the EU market.”

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