Taxation, a lever for the circular transition

The transition to a circular economy model, aimed at maximizing the value of resources and reducing waste, is now a priority issue for public authorities. Alongside binding regulations and incentive policies, taxation represents a powerful lever for accelerating these paradigm shifts. By modulating taxes and creating new tax systems, governments can influence the behavior of economic players and consumers, steering them towards circular production and consumption patterns. This “circular taxation” takes a number of complementary forms, from VAT to bonus/malus schemes and tax credits.

VAT modulation, a strong price signal

One of the most effective tax tools for encouraging the circular economy is to modulate VAT rates according to whether products and services are reused, repaired or recycled. A powerful lever to give circular products a competitive edge over new products based on natural resources.

In practical terms, this means applying reduced or zero VAT rates to activities involving repair, reuse or the incorporation of recycled raw materials. Conversely, new products that consume large amounts of non-renewable natural resources could be subject to higher rates.

This strong price signal helps to redress the economic balance in favor of circular economy models, which are often penalized by higher labor and logistics costs than mass production. A measure already implemented in countries such as Sweden, which applies a reduced VAT rate on repairs.