Leading fashion retailers, including Primark, H&M Group and Zalando, are calling on governments to introduce tax reforms. These are intended to make resale and repair more commercially attractive.
This move comes after nearly 70 fashion and textile organizations signed a joint statement. This was coordinated by the Ellen MacArthur Foundation. The statement warns that current tax systems continue to favor the production of new clothing over circular business models.
Other signatories include Bestseller, Selfridges, Global Fashion Agenda, Arc’teryx, Decathlon, Vinted, Lacoste, Vestiaire Collective, ThredUp and Etsy.
The group is calling on policymakers in the EU, US and Canada to reduce VAT on resale and repair services. In addition, payroll taxes associated with circular business models will be reduced and extended producer responsibility systems will be expanded to finance the infrastructure for the collection and sorting of textiles.
The proposals are particularly supported by retailers who are expanding their resale, repair and re-commerce activities. This comes against the backdrop of growing pressure regarding sustainability goals, textile waste and changing consumer habits.
According to the foundation’s new report, ‘The New Bottom Line: Policy levers to scale resale and repair for fashion’, targeted policy reforms could increase gross profit margins. For resale companies it could rise to up to 55 percent and for repair services to around 41 percent. The circular fashion market is expected to reach $393 billion by 2030, growing twice as fast as the entire fashion industry.
“Reselling keeps products in circulation while meeting customer demand for more affordable and sustainable options. But today, this business model is still economically penalized,” said Leyla Ertur, Chief Sustainability Officer at H&M Group. “If governments are serious about the circular economy, they must act. They should eliminate double taxation, reduce labor costs and remove other barriers that hinder resale.”
Mark Buckley, head of fashion and textiles at the Ellen MacArthur Foundation, added: “Fashion’s potential to become more circular is significant, but economic conditions discourage resale and repair. Companies are incentivized to exploit new resources rather than invest in the longer-term use of clothing.”
The initiative is part of the foundation’s ‘Fashion ReModel’ project. It helps brands and retailers develop revenue streams through resale, repair, rental and remodeling services. Participating companies reported that circular economy revenue is growing four times faster than overall company revenue. However, the segment still accounts for a relatively small share of total sales.
Resale and repair businesses are still often burdened with high labor costs. Additionally, they typically have to pay taxes on the items with each transaction, rather than just at the original point of sale.
Marianne Gybels, senior director of sustainability at Vinted, said that to make circular companies the first choice, they must deliver what matters most to consumers. These include reliability and affordability.
“To realize the full potential, politicians should support business models that make circular decisions more accessible. This helps the second-hand market to continue to grow and offers consumers high-quality, affordable alternatives that are significantly better for the climate than buying new products,” concluded Gybels.
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