Taxing plastic bags

In August, the Senate revived the plastic bag tax discussion by introducing two new measures now pending in committee. Senate Bill No. 811 proposes an excise tax on a wide range of single-use plastic packaging materials, not just bags. Senate Bill No. 865, meanwhile, limits the tax to single-use plastic shopping bags.

These bills follow the House of Representatives’ move in late 2022, when it passed a bill on a P100 per kilogram excise tax on single-use plastic bags, with a 4% annual indexation beginning in 2026. The House bill also earmarked the tax proceeds for municipal solid waste (garbage) management programs.

The two Senate bills mark the latest chapter in a debate that has been ongoing for some time, and one that I have written about several times before. The questions I raised as early as 2019, about six years ago, about tax design, enforcement, and impact remain just as urgent today.

I support the tax. Revenues earmarked for solid waste management, or simply proper garbage disposal, will be a big help. Plastic pollution can also be better mitigated by improving collection, disposal, and recycling, rather than by an outright ban on plastic production and use.

But any plastic tax must be designed with all stakeholders in mind, particularly consumers or end-users. Plastic has long been the practical and economical alternative to glass, cardboard, paper, and styrofoam packaging. It is highly unlikely that we will abandon it.

The Department of Finance (DoF) has consistently argued that an excise tax on single-use plastic bags will not only raise money for LGUs to implement waste management programs but also change consumer behavior by making plastic bags more expensive. It will also address the negative externalities of plastic bag use such as plastic waste clogging drains, worsening flooding, polluting rivers and seas, and contributing to climate risks.

The DoF previously projected more than P30 billion in revenues between 2025 and 2028, assuming a P100 per kilogram excise tax on single-use plastic bags. Other estimates suggest revenues closer to P50 billion over the same period, based on current usage patterns and forecasts.

The retail impact is where estimates often differ, since bags come in different sizes and thicknesses. Retail cost per bag matters more, in my view, because while producers will pay the tax at the source, they will ultimately recoup the cost from buyers or bag users.

Estimates range from 45 centavos to P1.50 per plastic bag, depending on size and thickness, the latter assuming a higher P150 tax per kilogram. Available data indicate that “T-shirt” plastic bags, or sando bags, typically weigh three, five, or 10 grams each.

At that price range, bag costs may still be manageable for many households. But the poorest of the poor, and marginalized sectors, may think otherwise. However, a P1.50 tax per bag is still modest compared to the taxes charged in Ireland, Wales, England, and Denmark, at around P9-P13 per bag.

The first design question in my mind is whether the tax should be levied by weight or per piece. The House bill in the 19th Congress, and the Senate bills now pending in the 20th Congress, all propose a per kilogram tax collected at the manufacturing or importation stage, at P150 per kilogram.

The risk with this method is that manufacturers might produce thinner, flimsier bags to reduce their tax bill. The thinner the bag, the lighter it is, and the lower the tax on a per-bag basis. But thinner bags can be reused fewer times and may thus be discarded faster. Also, retailers may opt to double-bag purchases, to avoid breakage. Thus, more bags might enter circulation.

Using weight as a tax basis is probably easier, especially if the tax is collected at the manufacturing or importation stage. Plastic bags are usually sold per piece, not by weight. Thus, it might be more consistent, and more effective, to tax bags per piece as well.

The secondary aim of the tax is to change consumer behavior and address externalities. This might be better achieved also by charging the tax per piece. In Ireland, for instance, a tax equivalent to about P9 per bag was introduced in 2002. It reportedly cut usage by 90% in one year. In 2007, the tax was even raised to the equivalent of P13 per bag.

These experiences show that a per-piece tax creates a direct signal at the checkout counter. A shopper will not want to pay more for every bag. In Denmark’s case, the government taxed plastic bag manufacturers by weight, and the reduction in usage was not as high as Ireland’s.

This brings us to the central question: are we taxing plastic bags to raise revenue, or to change behavior? Obviously, the government targets both. But the goals of changing behavior and addressing negative externalities may be better served by a per-piece tax rather than by per kilogram.

There is also the issue that an excise tax like the plastic bag tax, as a form of consumption tax, will hit lower-income households harder. A few pesos more at checkout may mean little to a supermarket shopper, but not to a street market patron. The poor and marginalized can get hit the hardest.

Also, at a time of high food inflation, policymakers should be careful with any measure that adds to prices. This is not an argument to delay or avoid the tax altogether. It is urgently necessary, but the rate must be calibrated. A schedule can be used, allowing gradual increases over time, on top of indexation.

Admittedly, enforcement will be difficult if bags are taxed per piece at retail rather than at source. Excise taxes on beer, tobacco, motor vehicles, oil and fuel, or jewelry are all collected from only a handful of manufacturers and importers, at the point of production or importation.

Single-use plastic bags, on the other hand, flow through millions of sari-sari (sundry) stores and wet markets. Policing every outlet is nearly impossible. Taxing at the point of production may therefore be more practical. Doing so, however, may create a smuggling problem. How can authorities check at the retail level whether a bag was taxed or smuggled?

Fuel marking was implemented in the past to check fuel smuggling. Tests can determine if fuel being sold was unmarked or smuggled. Cigarettes and liquor have tax seals on their packaging or cases. But what about plastic bags? How can authorities determine if bags sold in the market have been taxed or not?

Revenue use is another concern. Assuming a tax take of roughly P50 billion over several years, is this enough to offset the environmental damage caused by the country’s annual plastic waste? To what extent can that amount improve solid waste management, move us beyond landfills, and support recycling and other initiatives?

How will that money be spent, and by whom, and for what projects? What will be the process for accessing this special waste management fund? What safeguards will prevent abuse, and how will the fund be used efficiently, transparently, and accountably? We need to learn from our experiences with the Special Road Fund and the Special Education Fund.

There is little incentive for substitution, given the convenience and relatively low cost of plastic bags. Alternatives such as paper, cloth, or so-called biodegradable plastics can be more expensive and also carry environmental costs. The tax may also just shift the problem from plastic waste to paper or cloth waste.

I agree with the DoF that the tax measure can be a win-win for climate and revenue. It is worth pursuing. Pollution costs are real. Clogged drains worsen flooding, destroy livelihoods, and cost billions in damage. Our problems are made worse by corruption in flood control projects.

Earmarking revenues for waste management is also a step in the right direction. A dedicated revenue stream for garbage disposal guarantees regular funding, and can make it easier to plan and implement waste management programs. Any tax on plastic bags will also surely influence consumer behavior.

But plastic shopping bags are only part of the problem. Plastic sachets, plastic bottles, plastic packaging such as bubble wrap, and microplastics also contribute to pollution. With the tax, a gray market for untaxed bags is also likely to arise.

Global evidence shows a plastic bag tax can reduce usage even at modest levels. But design is everything. The tax should be high enough to bite, yet low enough to remain tolerable for the poor. And taxing at source may be more practical, ideally on a per piece basis instead of by weight.

Government should also consider incentives for recycling and repurposing, and efforts to prolong the life cycle of plastic bags, whether by producers or end-users. Safeguards against smuggling must be part of the package. And bags should be just the start. Sachets, bottles, and microplastics should be next.

The Senate now holds the key. The question is no longer whether the Philippines should tax plastic bags. It is whether the tax will be effective, fair, and timely. Also, will the tax be used efficiently, on projects that are effective, and in a manner that is transparent, accountable, and free from abuse and corruption?