Plastic taxes: a guide to new European legislation

According to Grzegorz Peszko of the World Bank, European countries are setting the way for extensive plastic packaging tariffs, reshaping trade and market circumstances for developing-country exporting enterprises.

Fees on single-use plastic consumer products including carrying bags, glasses, and silverware are not new around the world. Few countries, however, have implemented comprehensive plastic packaging tariffs that are eco-modulated to accomplish specified environmental results. Europe is leading the way, with the United Kingdom, Spain, and Italy at the fore.

Details on plastic taxes

The Plastic Packaging Tax (General) Regulations 2022, which went into effect on April 1, 2022, have the stated purpose of increasing recycling. The tariff applies only to plastic packaging products that include less than 30% recycled content. As a result, a plastic container containing 35% recycled content is tax exempt.

Plastic packaging tax legislation have already been enacted in Spain and Italy. However, although the Spanish tax went into effect on January 1, 2023, Italy delayed its implementation (for the second time) until further notice. The declared goals of both instruments are to reduce waste output from non-reusable plastic packaging and to increase plastic trash recycling.

Multi-material packing is handled differently. If plastic is the major component by weight, the taxable base in the UK is the weight of the entire packaging. For example, if a package contains 3g of paper, 3g of metal, and 4g of plastic, the entire product is deemed plastic, and 10g is taxed. Only the plastic component is taxed in Spain and Italy if the package is made of multiple materials. As a result, if the same product was imported into the Spanish or Italian markets, only 4g of plastic would be charged.

However, unlike the UK instrument, the Spanish and Italian tax designs offer dynamic incentives to boost recycled content above 30%. The entire weight of non-recycled plastic content serves as the tax base. In Spain and Italy, a plastic component of packaging with 35% recycled content would nevertheless result in tax liabilities, albeit in a lower proportion than the identical component containing 30% recycled content.

In Spain and Italy, the tax rate is €450 ($465) per tonne of taxable plastic, and in the United Kingdom, the rate is £200 ($250). The predicted (net) government revenue from the Italian plastic tax was estimated to be around €470 million ($484 million) for the first year, and €724 million ($745) million from the Spanish plastic tax. The British plastic packaging tax is estimated to generate £240 million ($300 million) in revenue in its first year. Revenues are likely to fall in the next years as consumers shift to more reusable, recycled, and non-plastic alternatives. Tax revenues are directed to the general budget in all countries. The choice of tax base and eco-modulation of tax rates result in environmental benefits.

Taxes are levied on all products sold in a country, whether created domestically or imported. As a result, these rules are World Trade Organization compliant because they make no distinction between domestic and imported items.

What does it mean for exporters?

The new plastic packaging fees will have an impact on enterprises beyond the borders of the countries that are adopting them. To remain competitive, exporters to plastic-pricing markets will need to consider not just offering appealing and sustainable goods, but also sending them in environmentally acceptable packaging manufactured from recycled or reusable plastic components or other ecologically friendly materials. They will request recycled plastic or plastic substitutes from domestic vendors, producing commercial value for green and circular business models in their own nations. The new plastic taxes, when combined with extended producer responsibility systems, sustainable product standards, and product limits, have the potential to transform global product design and commerce, especially if the plastic tax countries have significant market power.

Foreign producers must provide information about the quantity of recycled content used to produce their products' packaging to their purchasers in the UK and Spain in order to decrease their plastic packaging tax responsibilities. The UK government needs evidence of recycled content from the foreign producer or a thorough supply chain audit, which must be performed by the importer or a competent third party. Following the transition phase in which a manufacturer's declaration is valid, a recycled plastic certificate will be required in Spain beginning in 2024. It must be carried out in accordance with the European standard UNE EN 15343:2008 on 'Plastics recycling traceability and assessment of conformance and recycled content' and provided by a recognised institution.

Manufacturers and dealers would like to see equivalent records and accounting standards in all plastic tax countries for proving recycled plastic content. According to the Spanish plastic tax law (Article 77.3), the recycled plastic certificate can be issued by an entity recognised by the national accrediting agency in Spain or any other EU member state. This will enable developing-country recycling enterprises to achieve economies of scale and reduce transaction costs in trade with the EU.

Lower-income countries can take advantage of the new wave of plastic fees. Plastic taxes are excise levies, and so are well-known revenue generators even in weaker tax administrations. However, the design is important. Ghana, for example, has imposed a comprehensive plastic excise duty since 2014, covering all products specified under Harmonised System (HS) codes for chapters 39 ('plastics and articles thereof') and 63 ('plastics and articles thereof') (textiles). This is a far larger tax base than in the United Kingdom, Spain, or Italy. However, according to a preliminary assessment conducted by the World Bank with the assistance of the Problue and Global Program on Sustainability schemes, only a fraction of the revenues due are collected, despite the fact that the Ghanian tax is levied ad valorem, which should make tax collection easier. An ad valorem tax base also reduces the environmental impact of a tax, because the social harm caused by plastic is proportional to its weight and physical qualities, rather than its market worth. Another significant compromise with regard to environmental efficacy is that, unlike European plastic taxes, the Ghanian tax rate is not decreased for reusable plastic goods or recycled material. Because of the lack of such eco-modulation, the Ghanaian plastic tax does not contribute to the development of a domestic market for recycling and product innovation. It also does not assist Ghanaian exporters in preparing for the reduction of plastic packaging tax liabilities charged in Europe.

Packages of policies

Using its Plastic Policy Simulator model, the World Bank recently assessed the impact of several plastic policy scenarios examined in Indonesia. Upstream plastic taxes, expanded producer accountability systems, obligatory recycled content standards, and behavioural nudges, according to simulations, are required to influence product design and customer behaviour and reduce plastic waste at the source. Without upstream regulations, simply maintaining the current waste collection rate in the face of rapidly expanding waste quantities would result in an accumulation of unsustainable fiscal obligations, particularly at the subnational level, as well as a large increase in plastic pollution. According to the World Bank, a $280 per tonne plastic tax applied to the 20 most prevalent plastic consumer products and packages with less than 30% recycled content may cut plastic waste generation by one-third below baseline while raising up to $1.3 billion annually. Integrating upstream and downstream policy adjustments could help the government meet its goals at a low net budgetary cost.

Policy debates in Indonesia, Ghana, and, most recently, Nigeria show a growing interest among developing-country finance ministries in green plastic excises, which can deliver fiscal and environmental dividends while also assisting domestic manufacturers in remaining internationally competitive and incubating new productive jobs in sustainable product innovation and circular business models.

Grzegorz Peszko is the World Bank's chief economist for the environment, natural resources, and blue economy worldwide practise.

By fLEXI tEAM