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“Green VAT” of only 10 percent is intended to benefit environmentally friendly companies

Growing concerns about the environmental and social impact of the fashion industry have been pushing for solutions to promote more sustainable practices for years. In Spain, these efforts have led to the creation of the Green VAT movement, an initiative that seeks to reduce the tax burden on companies that operate ethically and in an environmentally friendly way.

Large multinational fast-fashion corporations dominate the market thanks to mass production and outsourcing of production to countries with low labor standards, which allows them to offer very low prices. However, this model comes with significant environmental and social costs.

In contrast, sustainable companies face higher costs because they have chosen ethical production, which means they use local factories and produce in controlled quantities to avoid waste. This situation creates a competitive disadvantage for these companies, as they cannot compete on price or access to the usual trade channels.

FashionUnited spoke about the “Green VAT” with Raúl González, CEO of Ecodicta and one of the driving forces behind this proposal, as well as with Gema Gómez, founder of Slow Fashion Next, as well as Koro López, board member of Greenpeace Spain, and Marta Álvarez, founder of Marama Estudio.

150 Spanish companies and freelancers already support the movement

The movement’s manifesto, supported by more than 150 companies and freelancers in the sector, advocates more favorable taxation for circular and sustainable companies, as this will enable them to offer better prices to consumers and achieve higher profit margins to invest in their growth.

The message is clear: reduce VAT to 10 percent for sustainable companies and products, both inside and outside large companies. There are three main objectives: to support companies that already operate sustainably and in a circular manner; to encourage those that do not yet do so to take the step; and to ensure that consumers have access to sustainable products at more competitive prices.

“We want all fashion brands that are founded from now on to work sustainably from the beginning,” said Raúl González in an interview with FashionUnited.

“Green VAT is a necessity if we want to achieve real sustainability”

Gema Gómez, CEO of Slow Fashion Next, expresses the frustration of many entrepreneurs trying to change the industry: “It is very frustrating to push forward the companies and start-ups that are supposed to change the sector and therefore the world, and see that they have no chance of competing in such a difficult market as the fashion market, which is dominated by fast fashion giants.”

“The green VAT is a necessity if we want to promote real sustainability,” she said in a statement.

Although the initiative began in the textile and clothing sector, it is expected to be expanded to other sectors, from food to mobility and telecommunications.

“We propose the introduction of a quality label awarded by the Foundation for Biodiversity, just as ENISA awards a label to start-ups, certifying the sustainability and circularity of these products and services. This label will be validated by a scientific committee composed of members of the Foundation, companies, non-governmental organizations, researchers and industry experts to avoid greenwashing,” it continues.

The tool designed to measure the sustainability of these companies and products is the “Social Balance Sheet” developed by the Alternative and Solidarity Economy Network in Spain. Companies are responsible for the information they provide and can demonstrate it if necessary, the website says.

Support for those who do it right

France has proposed a measure known as the “Shein tax” or “5 euro tax” to penalize companies that do not respect the environment or put the planet at risk through practices such as overconsumption or disposable fashion. However, this proposal sparked controversy as some felt it could be interpreted as “a simple payment for continuing to do what they want.”

In this case, however, it is just the opposite: those who do it right are rewarded. “For fairness reasons, circular and sustainable companies should receive friendlier taxation. This will enable them to offer consumers better prices to adopt circular practices and higher profit margins to invest in growth,” says the Green VAT manifesto.

At the European level, the digital product passport currently under development promises to be an important tool to improve traceability and transparency in the supply chain. This system will facilitate the identification of sustainable products and promote more ethical practices across the region.

The reality, however, is that individual countries have long been exploring different ways to incentivize responsible business practices. The UK and Belgium have introduced measures such as information requirements for sustainable fashion and eco-labels to help consumers make more informed choices. In addition, Switzerland offers tax incentives for sustainable companies, underlining the importance of supporting those that adopt responsible models.

This article originally appeared on FashionUnited.es. Translated and edited by Simone Preuss.

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