Will abolition of VAT for separate waste collection help to increase the volume of recycled waste?

This autumn, the Ministry of Finance, the Ministry of Industry and Trade, and the Ministry of Natural Resources of Russia have amended federal legislation regarding the abolition of VAT for those who are engaged in separate waste collection, scrap metal, waste paper, glass and rubber crumbs. The main motivator for the amendments is the desire to reduce the amount of waste for disposal. Artur Safiulin, a columnist for Realnoe Vremya, economist with many years of banking experience, suggests figuring out how the waste disposal system is operating at the moment and how much the abolition of VAT will positively affect the industry.

How it works in the world and in Russia

In general, there are three ways of waste disposal — recycling, incineration and burial. Usually a combined approach is used. For example, most of the material is sent for recycling, and the unusable part is burned. In Italy, 19% of waste is burned, in the USA — 13%, in Germany — 32%.

Solid municipal waste is actively processed in developed countries. In particular, in Germany, 48% of waste is get a new lease of life, in France — 22%, in the USA — 34%. For comparison, 90% of waste goes to landfills, only 7% is recycled, the rest is incinerated.

Given the current situation with landfills in Russia, the need for recycling is very acute. According to Rosprirodnadzor, more than 1,000 landfills have been entered into the state register of waste disposal facilities. With an annual increase of solid municipal waste of 1-2%, their resources of use will soon be exhausted. According to Rosprirodnadzor forecasts, this will take from one to three years (in different regions). It would seem that we have a lot of land, it is not a problem to create more landfills. But, first, regions do not have the means; second, it is the low efficiency of landfills, these objects occupy large areas that are subject to wind and water erosion, leaching and spreading of toxic substances. A properly designed and built landfill costs very substantial money — akin to the launch pad of a cosmodrome.

As for incineration, its share is very insignificant — 2-3% of the total volume of waste. There are only six incineration plants in the country — three in Moscow, Pyatigorsk, Murmansk, and Vladivostok. Five more are under construction — in Moscow region and here, in Kazan. Taking into account the disadvantage of this method of disposal — a large number of chemicals that are released into the atmosphere, one should not expect a large number of new incinerators. The construction of each of them is accompanied by the discontent of the population, which results in lengthy examinations and delaying deadlines, as in the situation with the plant in Kazan.

The only possible option remains the development of waste recycling into recyclable materials. According to experts, if we increase the pace of recycling, the percentage of waste sent to landfills can be reduced by 75%. For information, now the total amount of waste a year is 65 million tonnes. And only 18 million tonnes are being sorted. With proper sorting, we can get a lot of useful products from recyclables — cardboard packaging, corrugated cardboard, packaging paper, building materials are made from waste paper; PET bottles, containers, boxes, clothes are made from plastic; paper bags, stationery and toilet paper are made from tetrapack packaging. An interesting figure — 400 aluminum cans can come back to us in the form of a bicycle!

In Russia, the association of manufacturers of products in packaging RusPRO was established in 2018, with the aim of combining efforts to recycle waste from its packaging, within the framework of the so-called concept of extended producer responsibility (EPR). The association includes the large companies such as Coca-Cola, PepsiCo, Unilever, Tetra Pak, Nestle, Danone. The products of these companies occupy a very significant place on the shelves of our stores and the amount of waste they generate with their packaging is off the scale.

Within the framework of the EPR, the manufacturer has three options: to pay an environmental fee to the state for packaging recycling; to conclude a contract with a third-party contractor for garbage disposal; to organise the process independently. The RusPRO Association cooperates with processors who accept packaging in the interests of food producers and provides recycling certificates.

What is proposed to be done and what are the prospects for the industry

Now the chain of waste collection and processing has the following configuration — people bring secondary resources to collectors, these companies collect, sort, transport and store waste. Then they sell these resources to processors who are already creating recyclable materials for the production of goods. The government is going to abolish VAT at all for the collectors and reduce the rate for processors. This will give an impetus to the use of recyclable materials in comparison with primary and will contribute to the development of processing. It will be 20% more profitable to extract resources from waste. Processors will also get a VAT rate of 10% when selling recyclable materials.

In general, the waste recycling industry in Russia has a very large investment potential. A lot can be made from recyclable materials — furniture for gardens and parks made of plastic instead of another round of packaging and bottles. Broken furniture can be used as recyclable materials for garden benches, fences, siding. That is, there are a lot of options for use, and with proper tax incentives, up to a reduction or cancellation of VAT throughout the chain for goods from recycled secondary resources, we can get cheaper goods in stores.

Recycling of waste paper and PET is in demand on the market now. Market players sell secondary raw materials to existing enterprises or negotiate with those that will be created. With an increase in the number of sorting stations, the volume of supply of raw materials will increase by a multiple. This is potentially a very large market. Interestingly, China is showing great interest in recycled plastics, at least it can be sold to them. Another example is that there are several players who make a filler for jackets from bottles — sintepon.

Experts say there is a shortage of recyclable materials at the moment — so little we sort and process, in general. Now the market belong to suppliers, when processors are fighting for the opportunity to buy waste — offering high prices and buying volumes in advance. An interesting fact is that some recyclers are ready to finance the construction of sorting points for regional operators, just so that the supply of raw materials in the agreed volume is guaranteed.

Recycling is the only solution to waste problem

The main problem for the development of the waste disposal market is the inability to organise an efficient business due to the lack of raw materials due to the lack of an effective waste collection system and a lack of sorting capacity. Stable supply of raw materials is a big question.

Only now the state has realised that this industry needs to be legislatively and economically stimulated by increasing the volume of involvement in economic turnover. Now we see concrete proposals that will definitely give results in the foreseeable future. In fact, as mentioned above, recycling is our only solution to the waste problem. In addition to the abolition of VAT, the Russian Environmental Operator (REO) proposed to completely cancel personal income tax from the delivery of all types of recyclable materials for individuals.

In conclusion, I would like to note that the measures taken by the government are adequate to the scale of the tasks. Clear benefits and preferences are designed to make recycling more interesting as a business. Besides, it is necessary to carry out work in terms of planning effective logistics to minimise costs, train and encourage citizens to collect their garbage separately, consider other measures to stimulate businesses to launch new recycling plants, possibly compensating for part of the investment and operating costs. It will be interesting to observe the developments in this industry.

Artur Safiulin

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The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.