The 2006 EU thematic strategy on the sustainable use of pesticides says ‘’taxation should be investigated further in order to establish a ‘banded’ taxation system as a proxy for true externalities in the future’’. The implementation, through Directive 2009/128/EC, The Sustainable Use Directive of Pesticides, highlights that ‘economic instruments can play a crucial role in the achievement of objectives relating to the sustainable use of pesticides. The use of such instruments at the appropriate level should therefore be encouraged while stressing that individual Member States can decide on their use without prejudice to the applicability of the State aid rules.’
Certain Member States within the European Union are still offering farmers a lower VAT level for the use of pesticides, despite their increased cost to public health and the environment. Lower VAT rates for pesticides represent an environmentally harmful indirect subsidy. PAN Europe has created a database on best practices in pesticide taxation, providing an overview of different pesticide taxation schemes.
The Scandinavian countries have a long tradition in the taxation of pesticides. In July 2013, Denmark introduced a pesticide tax, where taxation is not linked to the nominal value of the insecticides, but linked to their environmental and health toxicity. Also, Norway has a pesticide tax, while Sweden argues that they prefer banning active substances rather than taxing them, an argument difficult to contradict. A few other actors have decided to experiment with various forms of pesticide taxation:
The Danish pesticide tax
The Danish pesticide tax is closely related to the aim of reducing the pesticide load indicator. Effective from July 1, 2013, the law is differentiating the tax on approved pesticides; the tax is paid on pesticides according to how large the impacts from the pesticides are on health, nature, and groundwater. More info in Danish here. More information in English.
As the first country worldwide, Sweden introduced a special flat tax on pesticides based on the volume sold in 1984 with the objective of reducing of residues in surface water or food and reducing the environmental risk associated with pesticide use. When the pesticide tax was introduced, the risks were associated mainly with the used amount of pesticides and not substances.
Initially, the tax was introduced with SEK 4/kg AS and was increased stepwise to currently SEK 34/kg AS (~3.64/kg. The last increase from SEK 30 to 34 took place at the beginning of August 2015 (§ 2 Lag (1984:410) om skatt på bekämpningsmedel ) Until 1995, the financial means of the tax were used for agri-environmental programs aiming to reduce pesticide application and to promote integrated pest management. After 1995, the revenues have been directly allocated to the general budget. Tax paid by producers and importers. (Lefebvre et all, IPM adoptation in EU). Recently, the Swedish government commissioned an investigation to review the current tax on pesticides and concluded that a revision is necessary as the definition of pesticides is not the same in the Environmental Code as in the Act on Tax on Pesticides, which makes it difficult to check that the rules are followed and whether relevant environmental goals are achieved. It also concluded that the analysis of whether the tax is effective and how it contributes to environmental protection effect might be necessary. Furthermore, it stated that when the pesticide tax was introduced, the risks were associated mainly with the amount of pesticides used and not the substances' various health and environmental risks. A tax that is based solely on the amount active substance thus promotes so-called low dose pesticides, while pesticides used in large doses per unit area are disadvantaged. Some low-risk products such as soap, rapeseed oil and similar substances which are mainly used in organic farming are disadvantaged by the current tax system and therefore there are good reasons for a revision of the current pesticide tax.
The existing pesticide tax in France has been reinforced by the law, voted in December 2018, by adding some pesticides to the list of products submitted to this tax, and by raising the rate of the tax. The pesticide tax is payed by pesticide buyers, collected by pesticides sellers, and goes to the "agences de l'eau" the water agencies. Providing water agencies more resources to encourage conversions to organic farming has been the main aim of this tax reinforcement.The enlargement and the modification of the rates must bring about 50 million additional euros.
Further reading "The evolution of the tax on pesticides and the pesticide savings certificates in France" by OECD (2017).
The Italian pesticide tax started in 2001 and is fixed at a total of 2% of the overall pesticide (and fertiliser) sale with the main purpose of funding research into the future development of organic farming systems and of the quality schemes. In the period 2018-2020 an annual contribution is expected to be around 13.000 euro.
CAP and Pesticide Taxation
Frank Berendse, Emeritus Professor at the University of Wageningen, suggests in his article in ‘Nature’ magazine to fundamentally reform the new Common Agricultural Policy as from 2020 to be able to ensure the future of European Agriculture and nature. He recommends a new progressive tax on artificial fertilizers, pesticides and imported fodder, charged per surface unit of land. Berendse suggests including these taxes in a third pillar of the CAP. He further concludes that this will make the CAP more balanced because farmers who provide societal services will be rewarded for their efforts (like cutting hedges) and the polluter will have to pay and also this will lead to remarkable, price-driven changes in the selling of sustainable products. Eventually, this will make healthy and ‘clean’ food available for every European.
Application of VAT on Pesticides
PAN Europe is very concerned that a number of member states (among others Cyprus, Romania, Slovenia, Portugal and Poland) are according to the EU's own official statistics applying artificially low levels of VAT for pesticides. PAN Europe urges that Member States:
1) stop applying artificially low VAT on products like pesticides and fertilisers which are harmful to the environment and public health, while not applying low levels of VAT on products which are beneficial for the environment (ex. organic products).
2) start considering applying taxes reflecting the "pollutor pays" principle.
See for further information: PAN Europe Feedback to EC consultation on the EC's proposal for a directive on minimum VAT