Across the EU, heads of government have been working to reach an agreement on a recovery package that will help mitigate the fiscal consequences of COVID-19, part of which focuses on a green recovery. Key to this recovery package is the implementation of new taxes.
In this new blog series, we – along with a few of our colleagues – will be sharing some of the initiatives underway and the implications and opportunities they present. These include:
- The proposed plastic tax
- The review of the Energy Taxation Directive (ETD)
- A proposed Carbon border adjustment mechanism (CBAM)
- The review of the EU Emissions Trading System
- And other initiatives
In this first blog, we will look at the plastic tax.
Using plastic tax to fuel a sustainable future
Political agreement on the EU recovery package was reached by the EU Council in July 2020 and a portion includes revenues from a ‘plastic tax.’ The European Commission has not yet formalized this initiative, so much of the details are unknown, but the main idea is that the EU will start collecting from Member States a contribution on non-recyclable, single-use plastic. Initial estimates indicate that this new plastic tax can provide the EU with between EUR 6 to 8 billion dollars of additional revenue each year and demonstrates a strong investment in a sustainable future.
From the details shared around the plastic tax, we anticipate some impacts upon Member States:
- Member States will have to remit the contribution to the EU, but raising the revenue (e.g. designing, implementing and collecting the tax) will be their responsibility
Starting 1 January 2021, this contribution will be calculated by the weight of non-recyclable plastic packaging waste at an expected rate of EUR 0.80 per kilogram.
- Member States will likely have a large degree of freedom as to how they design and implement measures
The implementation and complexity of different schemes from country to country will likely lead to a host of heterogeneous measures. Some Member States have already introduced similar tax schemes (e.g. Spain and Italy) that are not effective so far.
- Member States will have to transfer the amount calculated by the Commission to the central budget, regardless of whether they have set up a national system to collect the tax
An example can be seen with Austria, who – in the interim – intends to pay its contribution from its national budget.
What does this mean for organizations and other individual taxpayers situated in the EU?
This will depend on whether the Member State chooses to collect the plastic tax by way of a tax on specific taxpayers; the definition of taxed products; the mechanism to collect the tax; and the refund options, if appropriate.
Until more details are made publicly available, we can only predict that companies from a variety of industries will be impacted. For now, what we do know is that if a plastic tax is introduced in a Member State, the tax burden will be both fiscal and compliance related. And the obligation to implement robust and compliant tax assessment and collection processes to impacted companies, will likely be required within a very short timeframe. With the new year quickly approaching, it’s imperative that organizations start thinking about a high-level impact assessment of plastic tax, based on the latest developments and information currently available. As a first step, it will be important to get transparency in the complete supply chain to understand where and to what extent non-recyclable plastic is purchased, used, produced or sold. Consulting with industry associations, professional services firms, and other channels will also bring great value in the discussion on how this tax can be best implemented, efficiently and effectively.
Looking ahead, the EU’s recovery package has the potential to act as a driver for sustainable growth and a green economy. We look forward to exploring the EU’s ESG initiatives in subsequent blogs. For further reading in the interim, we encourage you look at KPMG’ response to the European Commission’s recent public consultations on the Energy Tax Directive (ETD) and Carbon Border Adjustment Mechanism (CBAM) on our Responsible Tax site.