The Scotland Act 2012 received Royal Assent on 1 May, amending elements of the devolution settlement which was established by the Scotland Act 1998. Under Section 30 of the new Act, the Scottish Parliament will, from April 2015, have the power to set and administer taxes on the disposal of waste to landfill and the current UK landfill tax regime will thereafter be disapplied.
The Scottish Government has now commenced a consultation which sets out their current thinking on the introduction of a Scottish landfill tax to replace the existing UK tax. The consultation document invites responses on a range of questions, and interested parties have until 15 January 2013 to make submissions.
The current system
The UK landfill tax was introduced in 1996. Its effect on the management of waste has been substantial: there has been a one third reduction in the proportion of waste sent to landfill since the introduction of the tax and recycling levels have increased to a similar extent.
Landfill tax is chargeable by weight and comprises two separate rates, both of which are currently administered by HMRC and collected from landfill site operators:
The current standard rate for active wastes is £64 per tonne, and the lower rate for inert wastes is £2.50 per tonne. In March 2010, the UK Government announced that the level of tax for active wastes would increase by £8 per tonne each year until reaching £80 a tonne in 2015/16 and that the rate would not fall below £80 per tonne thereafter.
A measure of landfill tax liability can be avoided: the Landfill Communities Fund is a tax credit scheme whereby operators of landfill sites can contribute up to 5.6% of their tax liability to support local projects that meet environmental objectives.
Recent developments in Scotland
The Waste (Scotland) Regulations 2012 came into force on 10 May 2012. These landmark regulations bring in substantive changes as to how waste and materials are collected, processed and cycled back into the economy, including:
These Regulations will be a key tool in delivering Scotland's "Zero Waste Plan" and should be expected to further reduce the volume of waste going to landfill, particularly waste that is not biologically stable.
The Scottish Government's proposals
Whilst the introduction of Scotland's new landfill tax is still some way off, the consultation document contains some strong pointers as to the Government's likely approach. It seems reasonably clear that the Government intend to introduce a similar, successor landfill tax in Scotland when the UK regime ceases to apply in April 2015. Indeed, the document goes so far as to state that:
"the Scottish Government does not intend to make significant changes to the form or structure for the introduction of [the landfill tax] replacement in 2015"
The consultation does, however, seek views on how the system may be refined or enhanced. So what will the new tax look like and how will it work?
In March 2012, the Cabinet Secretary for Finance and Sustainable Growth announced the establishment of Revenue Scotland to oversee the administration of the devolved taxes in Scotland, including the new landfill tax.
Revenue Scotland will work with SEPA to administer taxes on disposals to landfill. The consultation document states:
"One of the main benefits of SEPA fulfilling a role in administering a landfill tax system in Scotland is the opportunities it affords for linking its existing permitting role for landfill sites with tax collection duties. This could include using existing enforcement staff and site visits to streamline processes and reduce administrative burdens on landfill operators. Furthermore, SEPA is already responsible for data returns from landfill sites"
The consultation seeks views on other aspects of the collection and administration of the tax. For example, the current model is based on self-assessment but the Scottish Government has noted that central assessment may be an appropriate option to consider. The "tax point" (at which the tax liability arises during the landfill process) is also being discussed with different options having been suggested. Consultation responses are invited on this particular point.
The Scottish Government has not confirmed the rate of tax which will apply when it is introduced in April 2015.
However, the consultation document states that, to provide certainty for stakeholders, the Scottish Government intends to introduce the tax at least at the same rate(s) as the UK system in April 2015. This would mean, based on current UK Government policy that the standard rate would be £80 per tonne and the lower rate would be £2.50 per tonne.
The consultation document also states that it is the Scottish Government's intention to maintain a similar "two rate" system and to continue to levy tax on the basis of weight. The Government is, however, interested in receiving consultation responses on the list of materials that should qualify for the lower rate.
Landfill Communities Fund
The consultation document notes that the Landfill Communities Fund has played an important role in supporting communities affected by landfill sites, and accordingly the Scottish Government proposes the establishment of similar, successor fund for Scotland, again financed via a tax credit system. The Scottish Government proposes, however, to allow operators to contribute 10% more to the fund that is presently the case. Based on current landfill rates, this would increase the value of the fund by approximately £500K per annum.
A "new" tax?
Given the Scottish Government's clear intention to introduce a landfill tax for Scotland which will preserve the key aims and structure of the current UK tax, it seems unlikely that this "new" tax will change the broad policy and investment decisions of stakeholders within the waste management sector.
However, the rate of tax for the disposal of active wastes will be a key issue. One would expect the Scottish and UK governments to set their respective rates in light of their own particular policy and revenue objectives. There is, therefore, the distinct possibility that landfilling of waste may become more expensive, and therefore even less attractive than it currently is, on one side of the border rather than the other.