Green Taxes: Using VAT to Fight Climate Change 

September 27, 2022 in Ecommerce Tips

In 2021, The United Nations Climate Change Conference (COP26) aimed to reassess how world leaders are achieving their commitments to The Paris Agreement. This agreement lays out vital actions to limit global warming to 1.5 degrees. As this window of opportunity is brief, nations are now evaluating current policies. ‘Green taxes’ are being discussed as a potential lever to drive carbon mitigation strategies. 

COP26 Summit 2021

In recent years, governments expressed reluctance to use taxation as a vehicle to fight climate change. This attitude is clear through the installation of benign initiatives. For example, the Emissions Trading Scheme or the Carbon Price Support Tax. Government concern posited the public’s scepticism over carbon taxes as a reason to delay. This was shown in a 2017 report by the Grantham Research Institute and the Centre for Climate Change Economics and Policy. Today, governments can no longer wait. Nations are now moving to take immediate action against climate change. 

So, how does this affect you as a business owner? It is crucial that the ecommerce industry implements green taxes as online sales are due to account for 95% of purchases by 2040. Businesses like yours will be at the forefront of ensuring these new schemes are successful. To prepare your online store now, here are several new green tax schemes that are currently approved or will soon be: 

Plastic Tax – in the UK and in countries across the EU, a plastic tax is in place. In the UK, this applies to any plastic packaging manufactured in or imported into the UK which does not contain at least 30% recycled plastic. This ensures that manufacturers importing over 10 tonnes of plastic on an annual basis will need to apply and pay PPT. 

In the EU, a Packaging Levy was introduced that states for each kilogram of plastic packaging used by companies that is not recyclable after use, EU Member States will need to contribute 80 cents. This is aimed to raise money for an EU climate recovery initiative. 

VAT on foodstuffs – EU governments have been in talks to reduce VAT tariffs on organic fruit and vegetables to 0%. They also intend to raise VAT on meat to create a more sustainable food system. Recent market research has found that 70% of German, French and Dutch consumers support the meat tax. Only if this revenue goes toward supporting farmers and animal welfare.  

Solar Panel VAT reduction – since April 2022 in the UK and across the EU since, solar panels have a reduced VAT rate of 0%. This is to promote the use of renewable energy sources. In the UK, this VAT reduction also applies to air source heat pumps and ground source heat pumps.  

Progress is beginning to happen. But it can take significant time for key policy updates to be installed by governments. If you have a business in 2022, there are several ways you can be proactive now to act against climate change.  
 

Stay up to date with green legislation  

In the last 3 years discussions between world leaders have focused on climate change and the actions that are necessary to slow its effects. If you sell online, you need to stay aware of these talks and their outcomes. As green taxes become a popular topic in the arena of climate change, it’s essential to stay up to date. Keep an eye on potential initiatives that could affect your business processes.  

So, stay in the know and ensure you follow the advancements of green taxes and other sustainable initiatives. This can give you an insight into how you can reduce your carbon footprint now. 
 

Switch to environmentally friendly packaging  

In line with the recent plastic taxes emerging across the EU and UK, more and more businesses have gone green. Even McDonalds pledged that by 2025 their packaging will be 100% renewable and recyclable. And all businesses should follow suit. Using sustainable packaging reduces your business’ contribution to plastic waste. Making the switch can save you money too. As initiatives crack down on the use of non-biodegradable materials, using greener alternatives can balance your margins against costly fees for plastic packaging. 

Switching to sustainable packaging doesn’t have to be a huge change either. By opting for alternative sustainable materials, you don’t have to alter your branding. Try swapping plastic for paper tape, or plastic shipping bags for cardboard ones. These small changes can keep branding consistent but are more sustainable. 

Adapt your processes to fight climate change  

Now is the best time to adapt and review your operations to fight climate change. Assess each stage of your supply chain to see where changes can be made. More frequently we are seeing levies emerge against polluting fuels, which could forewarn businesses of future taxes on types of transportation, disrupting supply chains significantly.  

If you source goods from a manufacturer, select one that uses renewable energy or that uses carbon neutral vehicles to deliver goods. Companies like Huboo are making sustainable fulfilment a reality, ensuring their carrier network uses electric and hybrid vehicles to reduce contribution to harmful emissions. Delivering the same great product to your customers sustainably should be the goal. Do some research on your processes to see where you can make changes. 

Looking to expand? Plan for sustainability ahead of time  

Every business wants to expand and grow. Success is the aim, but in 2022, success through unsustainable means might not get you very far. Consumers today are more likely to trust and return to your brand if you are sustainable. As seen by the overwhelmingly positive reception to the news that Patagonia owner, Yvon Chouinard, is giving all profits that are not reinvested in operational costs to a charity fighting climate change. Chouinard stating – “Despite its immensity, the Earth’s resources are not infinite…instead of extracting value from nature and transforming it into wealth, we are using the wealth Patagonia creates to protect the source.”  

Patagonia’s approach hopefully blazes a trail for more businesses to prioritise long-term sustainability and responsibility over short-term profits at the expense of our planet. As a recent study by SmartestEnergy reported,  4 out of 5 consumers are likely to choose a brand with a positive approach to sustainability. 87% of the participants in this report stated that they want to see brands act and see proof of their efforts. Invest in sustainability now and make customers aware of your intentions. This way you’re much more likely to gain loyal customers for the future! 

Additional note: Consumers are clever and always do their research – ‘green washing’ won’t work.  

It’s important to understand that everyone has a part in reversing climate change. As the UN warns that climate change could be irreversible by 2030, urgent action is needed today. This responsibility and awareness should increase parallel to your contribution to harmful emissions.  

If you sell internationally you need to act now to review your processes and move toward sustainability. Work alongside your employees, manufacturers, couriers and others to seek opportunities to improve. By finding collaborative ways across sectors and geographies to positively adapt your business, you can do your part in fighting climate change. 

Do you have questions about your VAT compliance or international taxation liabilities? Get in touch with a member of our team who can help.

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