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Industry and EU clash over secondary market incentives

The European Commission has poured cold water on industry calls for lower VAT rates to boost the secondary raw materials market.

Waste industry figures from the UK and across Europe have lobbied for a long time for the Commission’s circular economy (CE) package to include ’pull mechanisms’ to incentivise companies to use recyclates in their products.

FEAD, the European body for waste businesses, called for a number of measures last year, including minimum recycled content for selected products and lower or zero rate VAT on second-hand goods and products with recycled content.

President David Palmer-Jones (left) renewed these calls at the body’s lunch debate in Brussels on 23 May, as the EU Parliament’s amended report on the CE proposals is set to be launched in the next few days.

But Kestutis Sadauskas (right), Commission director of green economy, warned against introducing VAT-related measures because they would be a burden on businesses and said a flat rate was the ideal “because it is proven to work”.

He said: “Sometimes we see it too simplistically that if we reduce the VAT then everything will fall into place. Not necessarily.

“All businesses can deduct the VAT. So in the end it may not be a matter of the price because the final consumer pays the VAT, not the business who has the input. The impact on price is a lot smaller than you think.”

He said VAT administration was the second highest rating burden by SMEs due to its complexity. Around 20% of the revenue brought in by the tax was spent on managing reduced rates, he added.

“If we punch holes in that system even more, not only do we deprive our budgets, we put on ourselves major administrative burdens. I’m not saying it is not going to work – it might. But we need to understand how the whole system functions.”

Sadauskas agreed with Palmer-Jones that some pull mechanisms were necessary and said the free market had its limitations.

However, he added: “It has to be nudged in the right direction. But we cannot overregulate and this is very important to us.”

FEAD vice-president Peter Kurth appeared to disagree with Sadauskas, saying: “The answer cannot be after 20 years, ’this is too difficult so let us forget it’.”

Earlier, Palmer-Jones called for a “game changer”, such as that seen with landfill tax, to be introduced by the Commission. He suggested public procurement was a way to introduce minimum recycled content levels.

He said: “Nineteen per cent of the GDP of the EU comes through public procurement. There you have a strong influencer if the public sector choses to incorporate green credentials in every purchase that it makes.

“At the moment, I don’t see that because it is still too cost-driven. They have the ability to be a leading light in the shift towards a greener economy.”

Sadauskas said the Commission’s consumption chapter in its action plan included voluntary measures such as green public procurement.

“Those criteria are not quite up to date and we need to update them. But the question is how do we push various administrations to purchase and spend every year three trillion euros on procurement to procure the right things.”

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