VAT as an Environmental Tax: Current Practices

May 1, 2024
VAT as an Environmental Tax: Current Practices

Currently, Europe is seeing a number of so-called green taxes adopted at national levels. The trend is part of the countries’ environmental goals and commitments to the Paris Agreement, which provides strategies for limiting global warming. The green taxes aim to reduce CO2 emissions by making the pollution with environmentally harmful gasses economically unfavourable.

Among the most famous taxation schemes are the Emissions Trading Scheme and the Carbon Price Support Tax, making countries pay for their emissions. Below, you will find information on the new taxes in place that business owners should be aware of.

For example, the plastic tax is a frequent tool for taxing plastic manufacturing and use and is placed in the UK and some countries of the EU. In the UK, the tax is applied to any non-recycled plastic packaging made or imported into the country whenever a company imports over 10 tonnes of the material per year. In Spain, a similar way of taxing the use or manufacturing of virgin plastics is in place. A broader plastic tax is part of the European Packaging Levy, which taxes all businesses using non-recycle-able plastic packaging. The EU hopes to collect funds for the EU climate recovery initiative with the Levy.

Another type of taxation measure is VAT reductions. They can help boost the production of items considered environmentally friendly or beneficial. A good example is the EU’s intention to reduce VAT on organic fruit and vegetables or establish a 0 VAT on solar panels. A contrasting measure aimed at the same goal is raising VAT on meat or implementing a meat tax, which would help collect more funds from the sector, normally considered environmentally harmful.

These are only a few initiatives from an extensive set of environmental action legislation. With these initiatives, the national and EU leaders hope to encourage businesses to switch to eco-conscious packaging and more efficient and resource-saving operations. The shift is already happening as many businesses start using renewable energy or begin creating products that are better for the environment.

Best Regards, Vatabout team