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Taxation and the Circular Economy

What it means for business

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The concept of the circular economy is becoming increasingly prevalent in discussions around supply chains, sustainability and geopolitical challenges. As the circular economy agenda seeks to reduce waste and reduce raw materials inputs in all stages of the system, businesses will have to holistically manage all parts of their production and supply chain.

More broadly, business tax leaders are asking how the circular economy might fit with potential taxation developments. What has occurred to date and what might we see ‘around the corner’? What potential tax levers are out there? What impacts might they have on our business?

Taxation and the Circular Economy

What it means for business

What is the circular economy?


Proponents of the circular economy argue that the traditional economic system of production is a linear economic model. This model operates under the principles of ‘Take, Make, and Waste’ and does not have sufficient regard for the limitation of the globe’s resources.

A circular economy approach is said to involve the following three key principles:

  1. Design out waste and pollution
  2. Keep products and materials in use
  3. Regenerate natural systems
A circular economy

Key insights

Tax & the Circular Economy

Businesses should be aware of the different levers that have been used by governments to support and speed-up the transition to a circular economy. Of relevance are taxes, tariffs, and reliefs/ subsidies.

Tax at the end-of-life stage

Tax on raw materials only impact external costs from extraction or production processes but not from waste disposal. There may be both downstream and upstream impacts that need to be considered, and taxes have been introduced at end-of-life stage of products to address this.

Tax and subsidies at the use stage

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Tax at the production stage

From an implementation perspective there are several issues to consider such as:

  1. Increasing costs, particularly in the short-term as alternative raw materials sources/technology might not be available;
  2. the impact of cross material substitution effects and
  3. potential impact on trade and industries from a broader perspective.

How KPMG professionals can assist in this process


There are four key areas where KPMG professionals can assist businesses in embracing the circular economy. These are:

  • ESG specialists who can identify government initiatives that impact the circular economy including determination of the carbon footprint for an organization
  • Supply chain specialists who can consider the role of supply chain both for specific businesses and as a broader component of supply chain
  • R&D and grant specialists who have experience with grants and concessions globally
  • Tax specialists who can assist when considering environmental taxes and tax aspects of the circular economy

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Global Tax Policy Leader and Chair of the Global Tax Policy Leadership Group

KPMG International

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Global Leader for the KPMG Responsible Tax Program

KPMG International

Nicole Jager

Senior Tax Manager – Global ESG Tax (EU Green Deal & Decarbonization)

KPMG International

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