EU PLASTIC TAXES IN THE FRAMEWORK OF A CIRCULAR ECONOMY AND GREEN RECONCILIATION

Although there are 195 countries that have signed the Paris Agreement to limit CO2 emissions as of June 2021, each country sets its own targets within certain parameters. In particular, the EU is committed to cutting carbon emissions faster than others, and this target includes reducing emissions by 55 percent by 2030 compared to 1990 levels. In order to achieve this commitment, the EU undertakes serious reforms. One of them is the EU Green Deal, a comprehensive package of tax and non-tax measures. The plastic tax assessed by the EU is also one of the few tax reforms proposed as part of the Green Deal. Other measures; Energy Taxation Directive-ETD, Border Carbon Adjustment Mechanism-CBAM, Emission Trading Systems-ETS, we will cover plastic taxes in this article. But first we must explain the European Plastics Additive.

European plastic additive

The European Union has launched the "plastic additive" application as part of the package it has created to subsidize its expenditures due to the Covid 19 pandemic. This “plastic contribution”, accepted by all Member States, is the equity of the EU budget for 2021-2027 and includes each Member State's contribution to the EU based on the amount of non-recycled plastic packaging waste they produce. As of January 1, 2021, a contribution of 800 Euros is calculated for every 1 ton of plastic packaging waste that is not recycled. Preliminary estimates show that this plastic contribution could provide the EU with an additional income of between 6 and 8 billion Euros each year. If we calculate according to the amount of non-recycled plastic packaging waste in 2018; Germany and France have to contribute 1.3 billion Euros, Italy 845 million Euros and Spain 500 million Euros.

So what can Member States do to secure the necessary funding? Either they will pay the contribution from their own budget, regardless of whether they have established a national system to collect the tax (eg Austria and Belgium). Or they will set up a national system to collect plastic tax on certain taxpayers (eg Spain, Italy and the UK).

UNITED KINGDOM PLASTIC TAX SYSTEM

Although the United Kingdom is not a member of the EU, it is the first country to establish and operate a system on plastics taxes. From 1 April 2022, companies producing or importing 10 tonnes or more of plastic packaging within the UK are required to register with the tax system, report plastic packaging data and pay the tax quarterly. The system is estimated to affect around 20,000 packaging manufacturers and importers. The government thinks that with the Plastic Packaging Tax (PPT) system, the recycled material market will be stimulated and the emphasis on recycled content in packaging designs will be encouraged. (Over 2 million tons of plastic packaging is used in the UK each year, the majority of which is produced from original raw materials. Plastic packaging accounts for 44% of the plastic used and 67% of plastic waste.)

There are 3 points to consider in the UK plastic tax system;

1. Which packages are taxed?

For a plastic package to be included in the taxation system, it must contain less than 30% recycled plastic. In other words, packaging containing more than 30% recycled material is exempt from tax.

2. What will be the effective date and pricing?

The tax, which came into effect on 1 April 2022, is charged at £200 per ton.

3. Which businesses are responsible for tax?

The business that made the 'last significant change' to the plastic packaging or component is liable for the tax. The last important change; It is the final production process that changes one of the shape, structure, thickness and weight characteristics of the packaging component and makes a significant change in the structure of the packaging component before the packaging is filled with products. This includes extrusion, molding, layering and lamination, forming and printing.

What Will Companies Do?

First of all, it is necessary to carry out the necessary controls to find out which packaging is subject to tax.

• Plastic Packaging Tax is charged for each finished packaging component.

• Plastic definition; additives, calcite, paint, etc. It is made as a polymer-based material that can also be added. Cellulose-based polymers are taxable if they are chemically modified, and not taxable if they are not chemically modified. Packages made from biodegradable, compostable or oxo-degradable plastics are also subject to tax.

• For a package made of more than one material, if it contains more plastic by weight than other materials, it is classified as plastic packaging in terms of tax.

• Plastic packaging components containing 30% or more recycled plastic (pre-consumer or post-consumer) are exempt from tax. However, it is still necessary to keep records for packages produced or imported within a 12-month period. A product is considered to have been produced from the original raw material if it is not proven to contain recycled content in a plastic packaging. To take advantage of this exemption, you must have the following records:

I. Demonstrating how the percentage of recycled plastic is calculated

ii. Providing sufficient supporting evidence that recycled plastic is used

iii. Display of the dates when components were completed or imported

iv. Indication of which plastic packaging component the percentage relates to, including product lines or production

v. Verification of the source of recycled plastic

Items that can be used as evidence of recycled content in plastic packaging can be product specifications, contracts, inspections, production certificates, accreditations and international standards.

• If the packaging consists of several packaging components, the Plastic Packaging Tax must be taken into account for each component.

Plastic packaging component evaluation examples
 

• Plastic Packaging Tax is collected when the plastic packaging process is finished or when the finished plastic packaging is imported (after customs clearance). When a packaged product is already imported, tax is also charged for the packaging of the product in question.

• It is necessary to register in the system and pay the entire tax within 30 days from the date of responsibility for the Plastic Packaging Tax, otherwise a penal situation will be encountered. Even if it does not meet the limit of 10 tons per year and is exempt from tax, relevant records should be kept.

ITALY PLASTIC TAX SYSTEM

In line with the EU plastics strategy, Italy's plastics tax aims to establish a circular economy and reduce production and consumption, in which the design and production of single-use plastic products (manufatti con singolo impiego-MACSI) fully meets the needs of reuse, repair and recycling.

The Italian Budget Act 2022 postponed the entry into force of the Plastics tax in Italy to 1 January 2023. The said tax system is valid for all MACSI manufactured in Italy, manufactured in EU countries and sold to Italy or imported from non-EU countries; Semi-finished products (including preforms) used in the production of MACSI, made partly using plastic materials, and materials that allow MACSI to be packaged, marketed or presented are also included in the system.

Products exempted from plastic tax; Compostable MACSI in accordance with EN 13432:2002; Those used to contain and protect medical devices classified by the Medical Devices Commission are specified as those made from recycled plastic material.

Who Will Pay the Plastic Tax?

For MACSI produced in Italy, the manufacturer or the customer requesting the manufacture of MACSI for his work, for MACSI produced in other EU countries and sold to Italy; The person/company who buys MACSI in B2B sales, puts it on the market in B2C sales, and importer is responsible for MACSI from third countries.

Tax Amount

Plastics tax is 450 Euros for every 1 ton of MACSI within the scope of the system. For MACSI from non-EU countries, the tax is incurred and collected directly at the time of import. In cases where the amount of plastic tax to be paid does not exceed 25 Euros, a plastic tax return is not submitted and the relevant payment is not made. Failure to pay the plastic tax is subject to a fine of at least 250 Euros, ranging from two to five times the unpaid tax. In case of late payment, an administrative fine equal to 25% of the tax payable and at least 150 Euros will be applied. Late submission of the relevant quarterly returns is subject to a fine ranging from 250 euros to 2,500 euros.

The implementation of the plastics tax has been delayed since its entry into force in 2019. Although the plastics tax has been postponed several times, it will come into effect from 1 January 2023, mainly due to the approval of similar taxes in both the UK and Spain.

SPAIN PLASTIC TAX SYSTEM

Within the framework of the circular economy, the Spanish government published Law 7/2022 (“LRSC”) on 8 April 2022. With this law, measures that can be taken in accordance with the 2018/851/EU Directive (Waste Framework Directive) and the 2019/904 Directive (SUP Directive) on reducing the environmental impact of certain plastic products were transferred to Spanish domestic law.

While none of these directives force Member States to include waste or plastic packaging taxes in their legislation, the Spanish government has created two new tax systems; excise duty (IEPNR) on non-reusable plastic packaging and landfill and incineration tax (IEDVIR).

According to this newly established system; With effect from 1 January 2023, a tax rate of EUR 450 per tonne is foreseen for non-reusable and non-recycled plastic packaging. In this way, it is estimated that the government will collect approximately 724 million Euros of revenue per year.

The system in Spain is structured similarly to the new plastic packaging tax, which was approved in Italy and is expected to come into effect on January 1, 2023. However, it has more differences compared to the plastic packaging tax in the UK, which has been in effect since 1 April 2022. Taxpayers subject to Spanish plastic tax must register with the special registry for plastic tax by 30 January 2023 at the latest.

The new tax system, which will affect most industrial and consumer products manufacturers, will be applied to the production, import and intra-community purchasing of single-use plastic packaging in the Spanish market and will cover the following products;

• Disposable packaging containing plastic, whether empty or full.

• Semi-finished plastic products (eg preforms and thermoplastics) for the manufacture of disposable packaging.

• Plastic primary, secondary and tertiary packaging for packaging, marketing and delivering disposable packaging.

 Enforcement and Exemptions

The tax point for production will be deferred until the first sale of products within Spain, certain rules will apply for imports and intra-EU purchases. Foreign manufacturers will also be required to make a declaration through an Authorized Representative (AR).

Products containing multiple materials will only be taxed by the weight of the non-recycled plastic content, meaning the material need not be made entirely of plastic.

Unlike the UK practice, there is no recyclable content threshold for the product to be taxable. That is, all plastic disposable packaging will be taxed, but exemptions will apply if it contains recycled material obtained through mechanical or chemical recycling processes. For proof, taxpayers can submit a certificate issued by an accredited organization showing the quantity of the product and the nature of the recycled product.

We said that the tax rate will be 450 Euros per ton, and that the tax will be deducted if recycled content is used. To explain with an example; A product that contains 50% of the material obtained by chemical or mechanical recycling will face a tax burden of only 225 Euros per ton. Accordingly, packaging produced from 100% recycled plastic is tax-free.

Apart from this, packaging used for the preservation, protection, transportation, distribution and presentation of pharmaceuticals, medical devices, special medical-purpose foods, sanitary hazardous waste packaging, baby food packages for hospital use, plastic rolls used in agriculture, etc. and export-oriented products will be exempt from tax, and no tax will be charged for products that are not suitable for use or are destroyed. In addition, if the production, in-group purchase or import does not exceed 5 kg per month, an exemption will also be applied.

Manufacturers of taxable plastic packaging products and those who purchase from within the community will be required to fill out a plastic tax return periodically, the obligation will be monthly or quarterly depending on the frequency of value added tax declaration. Imports for plastic packaging tax purposes must be declared with customs import declarations. It is obligatory to specify the weight of the non-recycled plastic in the customs declaration. The importer will also need to explain whether the low volume exemption threshold (5 kg of taxable product per month) applies. In case of non-payment of tax, penalties of up to 50% to 150% of the unpaid amount may apply.

As I mentioned at the beginning of my article, the EU has approved an additive based on non-recycled plastic packaging waste produced in Member States as of January 1, 2021. This new equity for the EU budget 2021/2027 foresees a contribution of EUR 0.80 per kilogram of non-recycled plastic packaging waste produced in each Member State.

According to EU calculations, this new equity will provide the community with an additional income of 7 billion Euros per year (eg Spain's contribution will be between 400 and 650 million Euros). Therefore, in order to reduce the European plastic contribution taxation of non-recycled plastic packaging waste, Member States will take measures to encourage separate collection and facilitate recycling so that waste can be recycled in a quality manner. But there is also the other side of the coin. The recycling rates of countries like Spain do not even come close to EU figures, it seems very difficult for them to fulfill the commitments set by the EU in accordance with the circular economy targets. In such a period, Spain aims to facilitate compliance with its environmental commitments with the plastic tax they will put into effect.

To sum up, the tax exemption of products made from recycled materials will create the obligation for companies to export products to these countries to access recycled raw materials and to document the recycled content they use to benefit from the exemption. As well as packaging manufacturers, companies and suppliers that use packaging in their products will seek to benefit from this exemption.

Our country's plastics industry is the 6th largest producer in the world and the 2nd largest producer in Europe, and Europe is our most important export market. For this reason, in order to remove the obstacles in front of the export of our plastics industry, our Turkish Recycling Industry will have a great job and new opportunities will arise in the coming period. In this direction, our recycling sector should make new investments at the point of producing quality products and follow the technologies closely.

Our legislators should also strengthen the infrastructure at the point of separate collection of plastics and work to ensure that post-consumer plastic wastes are recycled in a quality manner. Practices that entail/make mandatory the use of plastic tax and similar recycled materials within the framework of the circular economy and the Green Agreement will be an opportunity for our industry, but will also constitute a breaking point for the recycling industry of our country. Let's not miss this train!