The Hindu Business Line : A new tax to cling onto CO<sub>2</sub> that's emitted

ON MAY 19, Dr Michael Cullen, New Zealand's Minister of Finance, presented the Budget. But what had stolen the limelight in the first week of this month was the announcement of carbon tax by Cullen's colleague Pete Hodgson, the minister responsible for climate change policy, making New Zealand the first in the world to levy a carbon charge as a response to global warming.

On that there seems to be some confusion, as evident in `Carbon Tax - Questions and Answers' posted on www.scoop.co.nz. To the query, "What other countries have a carbon tax?" the site answers: "Several European countries have carbon taxes, including the UK, Denmark and Switzerland. Most countries also collect various forms of excise duty on some or all sources of energy, and have done so for some time. The European Union introduced an emissions trading scheme in January 2005, which places annual caps on CO₂ emissions... Other greenhouse gas emissions trading schemes are being developed or implemented in Korea, Norway, Canada, among the Australian states, and among the northeastern states of the USA."

A story on www.guardian.co.uk by John Vidal clears the air by pointing out that while other countries, especially in Europe, have energy taxes that are weighted against producers, "New Zealand is believed to be the first to ask the public to pay directly for the costs of reducing global warming". You'd also learn that proposals for a Europe-wide carbon tax were abandoned in the 1990s.

"Organic chemistry is the chemistry of carbon compounds. Biochemistry is the study of carbon compounds that crawl," said Mike Adam. But if it seems a mystery as to how a tax can creep onto carbon, here're the details. The new tax is slated for April 2007, by when the average New Zealand household may have to pay about NZ$4 per week extra, for electricity, petrol and other fuels, contributing to a 6 per cent rise in power costs. Tax on power generators and factories will be NZ$15 ($11) per tonne of carbon dioxide emitted while burning coal, oil and gas. "The tax would be levied at the highest possible level in the production chain to keep compliance costs down," informs www.stuff.co.nz. Fuel cost will factor in the new tax, which is expected to rake in NZ$320 million a year.

That New Zealand's per capita emissions are more than five times those of China is a statement used for justifying the new tax. To crosscheck, I look at the Excel spreadsheet available on www.eia.doe.gov showing `World per capita Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels, 1980-2002 (Metric Tons Carbon Equivalent)'. For 2002, New Zealand scored 2.66 while China stands at 0.70. Though the number for India is only 0.27, I think our FM missed the chance of being the first to introduce the black tax.

Cold potatoes and frozen interest

RECENTLY, the Allahabad High Court decided a case where the Commissioner of Income-Tax was pitted against Giriraj Udyog P Ltd. The company ran a cold storage and let it out for potato storers. It also lent money against the security of potatoes. But the storers were so lax in making payments that sundry debtors piled up on Giriraj's books to the tune of over Rs 1 lakh.

When the taxman asked why no interest had been debited to the debtors' accounts, and taken credit for in the P&L account, the company explained that even the chances of recovery were not considered good, and sale proceeds of potatoes were not enough to wipe off the debit balances.

However, the ITO observed that since the company followed the mercantile method of accounting, interest at 18 per cent should be credited to P&L. As there was no relief at the Commissioner's level, Giriraj went to the tribunal, which looked at the loan agreement between the company and the storers and said that no date was entered there regarding interest payment. The ruling, therefore, went against the Department.

The High Court studied precedents on the topic and said that the present case was closer to the decision in CIT vs Birla Gwalior P Ltd than that in Shiv Parkash Janakraj and Co P Ltd vs CIT. "In the absence of fixation of any date or accrual of interest, it cannot be said that any interest accrued to the assessee-company," ruled the court. "Therefore, the finding of the Tribunal that even if the assessee is maintaining the accounts in the mercantile system, the interest did not accrue to it, is on terra firma."

Oprah Winfrey once said, "My idea of heaven is a great big baked potato and someone to share it with." The taxman's idea of heaven, too, may be similar. Only, he'd look for a bigger share.

Oil in a tablet

BANNER Pharmacaps (I) P Ltd manufactured Primosa and Simrose and marketed the same as `dietary food supplements'. When the question of classification for excise came up, there was a problem. The Department said that the product was `dietary food supplement' but the company clung on to `fixed vegetable oil' heading.

At the Bangalore tribunal where arguments took place, the company said that it put the oil extracted from plants in 500 mg/1000 mg capsule for home consumption. There was only repacking and encapsulating, and not any manufacture of a new product, said Banner.

The company also pointed out that the head preferred by the Department was applicable to lemonades or other beverages for use in the manufacture of aerated water, sharbat, prasad or prasadam, and the like.

The products were not dietary food supplements, argued Banner, citing sub-paragraph 16 in the HSN Explanatory Notes explaining how food supplements, based on extracts from plants, fruit concentrates, honey, fructose, and so on, contain added vitamins and sometimes minute quantities of iron compounds.

The Tribunal ruled against the Department, holding that vegetable oil did not change its identity when put in tablet form, and that the mere fact that Banner marketed the product as food supplement cannot be a ground to classify it thus for excise purpose. "Oil is like a wild animal. Whoever captures it has it," said J. Paul Getty. But capturing it in tablets sounds innovative.

Tailpiece

"Are you sure there was a tax consultant, too, in the great coach race?"

"Yes, to help cricketers save tax!"

Detaxification@TheHindu.co.in

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