23 April 2019
Swedish Government Aims to Raise Tax on Electronic Products
On 1 August 2019, Sweden will increase its so-called “chemicals tax” on electronic products by more than a third, according to a proposal put forward by the government in February. The law was first introduced in July 2017 and imposes a general tax on all electronic products. Yet the tax can be reduced by 50-90% if the product does not contain bromide, chloride or phosphorus. Moreover, Hong Kong businesses may like to know that direct sales from foreign companies to consumers in Sweden, i.e. via e-commerce, are fully exempted from the tax under both the current and proposed legislation.
The chemicals tax was introduced in order to encourage companies to use more environmentally friendly materials in their production of electronic products. It is levied on electronic products at a fixed rate per kilo. Under the current regime, major appliances such as washing machines and fridges attract a tax per kg of 8 SEK (0.75 EUR) and all other electronics are subject to a tax per kg of 120 SEK (11 EUR). These tax rates will be increased to 11 SEK (1 EUR) and 160 SEK (15 EUR) respectively, pursuant to the new proposal. This represents a tax increase of between 33% and 37.5%. The maximum amount of tax levied on any individual article cannot currently exceed 320 SEK (30 EUR). Under the new rules, this cap will be raised to 440 SEK (40 EUR), resulting in a 37.5% increase.
That said, these taxes can be reduced by between 50% and 90% depending on what chemicals they contain. If there are no concentrations of bromide or chloride additives above 0.1% by weight in a circuit board or a piece of plastic weighing more than 25 grams, the 50% deduction applies. If, in addition, there are no phosphorus additives, the 90% deduction applies.
Public consultations concerning the new law were concluded on 6 March 2019. The International Chemical Secretariat, Chemsec, reiterated the criticism it had previously directed against the law. Chemsec welcomed the tax’s focus on reducing the use of halogenated flame retardants in electronics, but opposed the inclusion of phosphorus. Phosphorus is more environmentally friendly than flame retardants containing bromide and chlorine. The switch away from bromide and chlorine based flame retardant would be more effective if phosphorus-based retardants were to be evaluated on a case-by-case basis, Chemsec has suggested. However, as is clear from the above description, the law already differentiates between phosphorus and the other materials to some extent (by increasing the reduction in tax in the case of phosphorus additives).
The tax has, in addition, faced considerable criticism from the Swedish electronics and appliances industry. In September 2018, HUI Research published a report – examining the effects of the initial tax – which was commissioned by the Swedish electronics business lobby (Elektronikbranschen), the Lund School of Economics and Management, and Business Sweden. The report concluded that the tax is causing sales and jobs to relocate outside Sweden and that it imposes an administrative burden on Swedish companies. Elektronikbranschen reiterated this critique with the government’s proposal to increase the tax, arguing that the products entering Sweden via e-commerce are exempted, and, as a consequence, the tax has not been able to achieve its environmental objectives fully. Instead, the tax is having a pronounced negative impact on the sector’s businesses and jobs in Sweden.
In the proposal setting out the details of the proposed tax rise, the Swedish government acknowledges the critique concerning e-commerce and the risk that Swedish companies are being disadvantaged by the exemption; however, the government does not consider that the impact will be significant. The exemption for products sold via e-commerce was introduced due to the complexities of levying the tax when electronic goods are sold online from a foreign seller to a consumer and the product is delivered directly to the consumer from a territory outside Sweden. In its proposal the government refers to estimates that foreign e-commerce would increase by 0.4% as a consequence of the tax. The tax was also expected to impose some compliance costs on companies, but since most companies have already incurred such adaptation costs, the increase in the tax is not foreseen to add such costs to any significant degree.
Moreover, the responsible minister, Minister for Housing and Financial Markets Per Bolund, has rejected the critique put forward by the Swedish industry lobbies by arguing that the sums involved are still relatively minor per product. Mr Bolund furthermore thinks that it is too early to evaluate the tax, and that the findings of the HUI Research report are based on erroneous assumptions. Job and revenue losses for Swedish industry, importers and retailers are not as severe as suggested, he opines. Nevertheless, Mr Bolund acknowledges the international dimension and the competitive concerns arising from a national tax for businesses competing in a globalised environment. Mr Bolund therefore promises that Sweden will work to have the tax adopted by other EU Member States and if possible implemented at the EU level.
As a consequence of the Swedish proposal, Hong Kong businesses selling electronics containing the aforementioned substances may want to review their use and consider if feasible alternatives exist on the market.