Public Policy

January 29, 2020

WILL EUROPE GET A NEW TAX?

Contact

Climate Ambitions

It is no secret that the top priority for the European Union for the coming years is addressing climate change, sustainability and the protection of the natural environment. The concept of the European Green Deal may only be a few months old but work by the Commission is in full swing, with the first batch of initiatives proposing a regulation establishing the Just Transition Fund and a communication on the Sustainable European Investment Plan having already been published. More is to be expected very soon, in March 2020 to be precise, as the Commission committed itself to publishing a proposal that would enshrine in law its objective for Europe to become the first continent to be climate-neutral by 2050. Moreover, the new circular economy action plan is also expected to be launched in March, focusing on four main sectors, namely: textiles, construction, electronics and plastics. Tackling pollution and waste will be at the forefront of the European agenda for years to come and plastics seem to remain the favourite pet peeve.

What’s Brexit got to do with it?

Another issue which has been the talk of the town for a number of months is, of course, Brexit. As from 1 February 2020 the United Kingdom will become a former Member of the European Union. This will have a number of consequences for both the UK and the EU, but one which cannot be overlooked and will have to be addressed immediately is the gap that the UK’s departure will leave on the EU’s budget. With its departure, the UK will no longer contribute towards the EU’s financial multi-annual programme, which means that the other Member States will have to come up with the necessary resources to cover the UK’s contribution which amounts to €15bn. Negotiations on the EU’s budget allocation have never been a walk in the park and are most times very lengthy and highly political discussions. This will definitely not become any simpler when one of the biggest contributors leaves the table.

Why tax plastics?

Is there a way the EU can kill two birds with one stone? Possibly. An idea which has been making the rounds in the Brussels circles is the creation of a new EU-wide fiscal tool. This would basically translate into a tax on plastic. Taxation has often been used as an economic disincentive and an effective tool in changing people’s behaviour and consumptions patterns. In theory, taxing plastics and making them more expensive can be a means of persuading consumers and subsequently producers to ditch the use of plastics in their products. This would help address the threats that plastics pose to the environment and reduce the prevalence of plastic in the European market. In reality, the dependence on plastics would not be reduced so easily and so quickly. This would, however, translate into a new (possibly lucrative) revenue stream for the European Union.

Will this new tax become a reality?

It is not yet clear what the legal basis of the possible new plastics taxation could be, however there is the option for this be classified under a different regime as that applied to other indirect taxation initiatives such as value added tax (VAT). An option could be for this type of tax to be levied on the imports of certain types of plastics, most likely non-recyclable, by Member States and the revenue generated would be consolidated in a central EU own resources fund. The introduction of a new tax (and an EU-wide one nonetheless) will not be an easy task and will definitely not occur overnight, take for example the controversial and much-discussed financial transaction tax (FTT). However, the momentum surrounding the Green Deal and the financial vacuum created by Brexit could force the Commission’s and Member States’ hands in dabbling with a new, green-focused, revenue-generating mechanism. Certain Member States have already stated that they are in favour of considering this approach which makes the introduction of such a tax a real possibility.

Search