As part of its efforts to mitigate the ongoing effects of the COVID-19 pandemic, in July 2020, the European Union reached an agreement on its recovery package, now known as the EU Packaging Levy. The initial rollout of the scheme happened as of January 1, 2021. Joshua Remi, Commercial Manager at ecoVeritas takes a closer look and finds out what brands and their packaging printers and converters can expect in the months to come.

The package contains a significant €750bn recovery fund, as well as a new multi-year budget for 2021-2027. Part of this agreement, and perhaps the most immediately pertinent for brands and their supply chains is the introduction of a new packaging tax from January 2021 on all non-recyclable plastic packaging waste handled by member states, with proceeds going towards the EU budget. Revenue generated from the new packaging levy will go into the EU Covid-19 recovery fund, designed to offer an essential cash lifeline to businesses across Europe that have been most affected by the coronavirus pandemic.

How is the EU Plastic Packaging Levy going to work?

Taxes through the scheme are projected to generate between €6bn and €8bn per annum until 2027. While it presents a sizeable revenue stream as part of the coronavirus recovery programme, and will no doubt offer an important lifeline for businesses, there are considerable concerns about the impact it will have on the plastics manufacturing and recycling industries.  

The policy is centrally governed by the EU, with each individual country paying their contribution to the budget at a fixed ‘call rate’ of €0.80 per kilogram, equivalent to €800 per tonne. In terms of how these funds are gathered internally, this is left to each country’s discretion; it is expected that it will most likely fall under general taxation or standalone legislation. 

The EU Plastic Packaging Levy is not to be confused with the UK’s new Plastic Packaging Tax despite both being hot on the agenda. Where the Plastic Packaging Tax focuses on the amount of non-recycled plastic content in a pack, the Levy puts the focus on closing the packaging loop and the disposal of plastic at the end of its life. 

What is the expected impact?

With a significant change like the EU Plastic Packaging Levy, much of the knock-on impacts will not be fully understood for some time and will be dependent on the scope of the tax, and how each individual EU member state chooses to recover funding. For example, a member state could collect the funds by way of a completely new tax legislation, or by changing which products are subject to existing taxation categories. 

Short timescales to implementation and Covid-19 have delayed several EU member states from agreeing on how they will finance their contribution, with the majority having already announced that they will transfer the amount from the national treasury directly to the European Commission in the short term. In the long-term it is anticipated that the costs of this levy may be passed on to producers and users of plastics packaging.

The variables must be considered to understand what effect will be seen, because it’s likely that businesses from a very wide array of sectors will be impacted, since so much of modern industry relies on plastic. To clarify who will be responsible for paying, we need to better understand at which stage of the supply chain the tax will be implemented.

Asking these questions ultimately demonstrates why so much currently seems to be unknown. Until there is full clarity of who will be liable, it’s difficult to be fully prepared.

•    Will the manufacturer of the non-recyclable plastic be liable to pay the tax?

 •    Is the company using the non-recyclable plastic within its product, packaging or processes going to be liable?

 •    Or will it be the retailer at the end of the supply chain, selling the product to the consumer?

As well as the direct financial impact of the tax, whichever party will be liable will also have the burden of compliance. Whoever becomes ultimately accountable for tax under the packaging levy will be obligated to implement comprehensive and robust tax assessment and collection processes from the scheme launch in January 2021. 

As a result of Brexit, the UK will almost certainly not be subject to these payments in the same way as member states will be. However, it is likely to still have an impact on businesses that import plastic packaging from within the EU, with prices likely to rise significantly. 

Clarity as a key focus

On the assumption that the proposals are passed by national parliaments, which seems to be a done deal, the time frame between announcement and proposed start date is noticeably short. However, it is essential that the tax is implemented in a way that offers genuine clarity and consistency. 

We would encourage businesses that are likely to be impacted by the aforementioned changes to, in the first instance, consult with their relevant industry associations who may contribute to the debate on how the tax can be best implemented. Every business with a stake in the changes also has a voice and a perspective to share.

The next step for many businesses would be a top-level impact assessment of potential future tax exposure using the information currently available. It may be helpful to begin a more comprehensive deep dive into certain areas that will be key for compliance, such as calculation methodology, value chain analysis and opportunities to reduce liability, for example. 

At ecoVeritas, we are using our core expertise in global data collection and analysis to help guide clients through the potential impacts of the EU Plastic Packaging Levy. This includes keeping businesses up to date and informed on the implementation in the UK, the EU and individual member states. As we have seen, the situation is liable to develop at a fast pace, which makes clear communication business-critical. ecoVeritas supports brands and their supply chains to simplify the complex and ensure that compliance is harnessed as a business driver. As more details become available, the business will continue to help organisations of every size put valuable business safeguarding plans in place and prepare for all eventualities.