Tax on single-use plastic bags
The Department of Finance (DoF) wants Congress to pass within a year a law on taxing the sale of single-use plastic bags to retailers. The measure is seen to raise revenues for the government, but at the same time finance waste management programs. Indirectly, the proposed tax aims to address climate change issues related to the proliferation of ocean plastic waste.
“When a good has some negative externalities, meaning the consumption or use of a product causes some social cost, we try to regulate that through taxation. In the case of single-use plastic, the social cost is mismanaged waste, which is related to climate change,” media quoted Finance Undersecretary Karlo Fermin S. Adriano as telling industry stakeholders in a briefing.
Finance proposes a P100 per kilogram excise tax on single-use plastic (SUP) bags, with a 4% annual indexation to inflation beginning the third year of implementation. On retail, the DoF claims the planned tax comes out to only 40 centavos per bag. Similar taxes abroad are 15 euro cents per bag in Ireland (around P9), and 22 euro cents in Denmark (roughly P13).
The proposed tax will cover only SUP bags that cannot be recycled. And, at present consumption rates, the government estimates the SUP bag tax to raise around P31.5 billion from 2025 to 2028. This revenue over a three-year period is to be earmarked for the government’s solid waste management programs in various towns.
The proposal has merit, but Congress will need to consider more research data to come to an informed decision. As with any proposal or change, there will be winners and losers, there will be pros and cons. And all these should be considered before finalizing any decision on a new tax that targets consumption rather than income.
Plastic pollution is already considered a global crisis. Data from the United Nations Environment Programme (UNEP) indicate that around 300 million tons of plastic waste are produced globally every year, and much of it ends up in our oceans. Single-use plastics, such as bags, bottles, and straws, are particularly problematic because they are used only briefly and then thrown away.
An excise tax on SUP bags may be practical and effective. Making SUP plastic bags more expensive, even by just 40 centavos per piece, might be enough to discourage use and encourage alternatives. At the same time, taxes collected can pay for plastic garbage disposal projects as well as public awareness campaigns discouraging plastic bag use.
The Ireland tax, started in 2002, reportedly resulted in a 90% reduction in SUP use within a year. But then, at a tax rate equivalent to P9 per bag, this should not be surprising. Denmark started earlier with such a tax, in 1993, and is now among the lowest users of such bags. Their tax is equivalent to a high P13 per bag. But their consumers are relatively wealthier than we are.
The government estimate of 40 centavos per bag may be at the low end. Other estimates put the average plastic bag weight at about five to seven grams. So, the proposed tax rate of P100 per kilogram translates to approximately 50-70 centavos per bag, and not just 40. Assuming 70 centavos per bag, the expected tax take is over P50 billion and not just P30 billion.
But to be effective, the proposed tax law should also provide for mechanisms that can ensure tax compliance and prevent illegal distribution of untaxed SUP plastic bags. Congress should also ensure that the proposed tax will not disproportionately disadvantage the poor. Moreover, scope should perhaps go beyond SUP bags and include other plastic products.
Some argue that the reduction in plastic bag use may not necessarily translate into significant environmental benefits. While taxes can reduce the number of SUP bags in circulation, they do not effectively address the broader issue of plastic pollution from other sources, such as packaging, bottles, and microplastics.
Thus, the proposed tax law should not be a one-off but should also lead to the consideration of a more comprehensive approach to reducing plastic pollution, one that targets all forms of single-use plastics rather than focusing narrowly on bags. Tax is not the only lever that the government can pull in this regard.
And given how creative Filipinos can be, there is also the concern that the tax can lead to the development of illegal markets for plastic bags. While this may seem absurd, it is not far-fetched. When taxes make legal plastic bags more expensive, a black market can emerge, with vendors selling untaxed bags at lower prices. This will create a major enforcement challenge.
Also, SUP bags are very popular with small retailers, who mostly operate on thin profit margins. A plastic bag tax can increase their costs, unless they pass on the tax to their customers. They can either make do with lower profits or lose customers to bigger retailers that can absorb the cost of the SUP bag tax.
In this scenario, can the government effectively implement and enforce the tax? Can it ensure that all retailers — big and small — will comply with the tax? What kind of regulatory framework can it put in place to ensure administrative ease in implementing and monitoring tax compliance? At the start, who will shoulder the cost of educating the public about the tax and encouraging behavioral change?
The effectiveness of a plastic bag tax also depends on the availability and affordability of alternatives. Reusable bags, for instance, need to be widely accessible and affordable to ensure a smooth transition away from single-use plastics. If alternatives are not adequately provided, the tax could lead to public dissatisfaction and resistance. Moreover, reusable bags can also be a garbage problem in the future.
And then there are other unintended environmental consequences. For instance, if consumers switch to alternative materials like paper or cloth without considering their environmental footprints, the overall impact might not be positive. Paper bags require more energy and resources to produce, and cloth bags need to be reused many times to offset their environmental impact compared to plastic bags. In this sense, the plastic bag tax could inadvertently just shift the environmental impact problem rather than solve it.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council