Europe's Plastic Tax: Navigating Complexity for Circular Economy Goals

Europe's Plastic Tax: Navigating Complexity for Circular Economy Goals

Global tax advisory firm WTS Global recently published a report outlining the latest developments in Europe’s "Plastic Tax" between 2023 and 2024. The report aims to guide businesses in navigating the tax challenges faced during the manufacture, import, distribution, and use of plastic products. It also explores ways to make the plastic value chain more circular.

Background of Europe’s "Plastic Tax"

On January 1, 2021, the European Union introduced a tax based on the amount of non-recycled plastic packaging waste generated by each member state. This "plastic tax" aims to reduce non-recycled plastic waste while funding the 2021-2027 EU budget amidst increased COVID-19 expenditures.

Each member state must pay a tax calculated at €0.80 per kilogram of non-recycled plastic packaging waste. While some member states currently cover this tax from their national budgets, others have imposed (or are considering imposing) new taxes, tariffs, fees, or contributions on plastic products. Some have expanded (or are considering expanding) existing tax schemes on plastic products. Non-EU European countries have also started targeting plastic product usage to reduce waste and promote a circular economy.

This "plastic tax" is estimated to generate around €7 billion annually for the EU. In 2021 alone, France contributed €1.2 billion.

Varied Approaches to Plastic Tax Collection

The design of the plastic tax varies significantly among member states. Some countries focus on packaging (both plastic and non-plastic), while others target single-use or non-reusable plastics exclusively. Some member states tax both domestically produced and imported plastic products, while others use a consumption tax mechanism specifically targeting foreign-sourced plastic products. The list of exempt products also varies by member state.

Tax rates differ among member states, with some choosing not to impose any tax at all. Although an EU-wide excise tax is appealing, it is challenging to implement due to the need for consistency with EU tax law principles. Member states must agree on uniform taxable subjects, events, and minimum tax rates.

Due to significant differences in plastic waste volumes and recycling rates among member states, extensive negotiations and compromises are expected before reaching an EU-wide agreement. Additionally, member states must unanimously agree to amend the plastic tax directive. The challenging and lengthy negotiation process underscores the numerous challenges in implementing such an ambitious plan, particularly due to a lack of consensus on taxing plastic products.

Diverse National Policies

Countries that have adopted or are adopting the plastic tax have policies that vary significantly and change rapidly.

In the UK, if the recycled plastic content in plastic packaging is less than 30%, manufacturers must pay £200 per ton for plastic packaging produced or imported into the UK. Spain imposes a tax of €0.45 per kilogram on non-reusable plastic products and additional taxes on waste incineration and landfill disposal.

Germany and Italy have repeatedly delayed implementing the plastic tax. According to Bertil Kapff, Director at WTS, Germany initially planned to implement the tax in 2025, but delays occurred due to challenges in data collection and excessive bureaucracy risks. The German government faces difficulties in finalizing a feasible tax model, postponing implementation to 2026.

In Italy, although specific reasons for the delay were not detailed, similar challenges, such as the need for more time to develop an efficient and less bureaucratic solution, influenced the implementation timeline, delaying it to July 1, 2026. Feedback from stakeholders and the need to assess the economic impact have contributed to the delay, as the government must ensure that the plastic tax does not result in unintended side effects, such as increasing the burden on SMEs or weakening national industry competitiveness.

For non-compliance with the plastic tax, Germany imposes a minimum late fee of 1% for payment delays exceeding three days. Deliberate or negligent violations of registration or reporting obligations are considered administrative offenses, punishable by fines of up to €100,000. In Italy, failure to pay the plastic tax results in fines ranging from 2 to 5 times the unpaid tax amount, with a minimum fine of €250. Late payments are also subject to fines and a 25% administrative fee on the owed tax, with a minimum of €150.

Challenges and Goals of the 'Plastic Tax'

The European Union's "Plastic Tax" initiative reflects a robust attempt to tackle plastic waste and fund EU budgets amidst post-COVID-19 challenges. It's clear that while there's broad support, implementation varies widely among member states, highlighting complexities in aligning tax policies across diverse economies and recycling capacities. This diversity also underscores the challenges in achieving a unified approach to plastic taxation and the need to balance environmental goals with economic considerations, especially for small and medium enterprises (SMEs).

Moving forward, harmonizing these policies while ensuring they effectively incentivize recycling and sustainable practices across the EU remains a critical goal. This requires ongoing dialogue and adjustments to address the concerns of all stakeholders and promote a truly circular economy for plastics.