According to David Boyd, government affairs manager at the landfill operator UK Waste, some of its customers have already decided to recontract waste disposal to reduce the impact of the tax, which comes into effect in October 1996.
This will drive waste away from more expensive engineered sites with liners, pollution monitoring and control systems to so-called "dilute and disperse" sites, which are literally holes in the ground.
On the other hand, Mr Boyd said, the prospect of the tax was encouraging other customers to recycle more. This is the effect the Chancellor, Kenneth Clarke, was hoping to achieve when he announced the tax in the Budget last November.
The landfill tax was hailed as the UK's first "green tax"; the revenue raised will be used to reduce employers' National Insurance contributions, shifting the burden of taxation from labour to resources and waste.
But although the waste management industry favours the use of taxes to encourage recycling, it says the proposal to levy the tax on an ad valorem basis (that is, by value) rather than by weight discriminates against more environmentally-friendly engineered landfills.
The Government estimates that 100 million tonnes of waste are landfilled each year, at an average cost of pounds 10 per tonne. The precise level of the tax will be set in the next Budget, but in its consultation paper issued on 21 March, the Government says the tax take will be in the range of pounds 300m to pounds 500m. A 50 per cent tax rate, raising pounds 500m a year, could finance a cut of 0.2 per cent in the main rate of employer National Insurance contributions. All comments on the consultation paper must be received by 5 June.
The nastier the waste, the more it costs to landfill. The Government's logic for an ad valorem tax is that relatively innocuous materials, for example inert building waste, would attract less tax than hazardous waste, reflecting its lower environmental impact. But Mike Wynne, managing director of UK Waste (a joint venture between Wessex Water and the US company Waste Management International) said it would "distort the market in favour of cheap, low-quality sites, and have little impact on the behaviour of waste producers except encouraging them to move to cheaper sites".
This would reduce the tax revenue. It would also result in more long- distance transport of waste and could provoke fly tipping in areas where landfill prices are high, again increasing rather than reducing pollution. Moreover, most companies pay one bill for collection and disposal, raising the prospect that charges could be weighted towards collection to avoid the tax.
Peter Jones, director of external affairs at Biffa Waste, the UK's largest waste management company, said: "To go the ad valorem route would be a disaster." He said it would accentuate the cost advantage of non-engineered landfills to such an extent that it would become uneconomic to set up engineered sites in some regions.
"Our preference is for taxes based on tonnages, simply because this will ensure a uniform rate throughout the country."
Mr Jones believes that a weight-based tax could be banded into three categories - inert, municipal and industrial - to reflect the relative environmental impact of the waste.
The Government is against a weight-based tax because as many as 500 of the 4,000 landfill sites in the country do not have weighbridges, despite a requirement to install them under waste management licensing rules introduced in 1994. At a cost of pounds 20,000 each, installation would add pounds 10m to the start-up costs of the tax.
But the larger waste management companies argue that anyone who is not prepared to invest this amount of money is not suitable to operate a landfill. "If there is a major pollution incident, what use are they?" asked Mr Jones.
He said an ad valorem tax was also "spongier" in terms of enforcement. Mr Jones explained that, despite a high level of vigilance, Biffa had to sack people at its landfills "from time to time" for taking cash in hand for accepting a load of waste. There was a history of unofficial deals being done at remote sites run by smaller operators, and checking the books "may not tell you anything", he added.
With a weighbridge and video surveillance, Customs and Excise, which will collect the tax, could cross-refer with written records of what went in and out of a site, Mr Jones said.