The Hindu Business Line : Should we be taxed for using the environment?

Countries such as the Netherlands, Portugal, and Finland have brought in differentiations into their car registration taxes so as to encourage buyers to opt for the `cleanest' car models. Indeed, taking into account congestion, pollution, and the fact that such green tax revenues allow other taxes to be cut - it seems quite a feasible option for the governments across the world. With over 80 per cent people in the world still aspiring to own their cars, mostly in Asia, the next few decades will be challenging for both carmakers as well as the environment-keepers. The stewardship of the natural environment is the responsibility of everyone. But do we practise what we preach? Speaking on this central theme, Mr David F. Williams of KPMG's Tax Business School in the UK shares a few thoughts with Business Line. Is the tax important, or the awareness? "The central paradox of environmental taxation is that the more successful it is in changing people's behaviour, the less revenue it will raise," he avows. More on the issues that are challenging administrations and what approach could be the best.

Excerpts from the e-mail interaction:

We believe KPMG had brought out a discussion paper on taxation and environment in March this year. How do you summarise it?

The care of the environment has moved over recent decades from a matter of minority interest to a `mainline' issue of widespread concern. The paper proceeds on the assumption that the protection of the environment is a worthy objective. To the extent that assumptions are made on scientific matters, they reflect what appears to be the majority view.

However, the paper suggests that for those who do not share that view, points of disagreement may not be as frequent as might have been expected. No taxation measures will affect solar activity, so greenhouse gas emissions; and the influence of taxation measures on them remain relevant factors even to those who see their role in climate change as a subsidiary one. Other measures, such as those to control toxic emissions, are less controversial.

Is defining the environment a problem?

We recognise that there may be situations where taxes on environmentally harmful activities can shade into charges for services, but suggest that establishing a precise definition of `tax' is nevertheless of little importance. Defining `the environment' is more problematic.

In our discussion paper, its meaning was restricted to physical factors; i.e., such matters as climate (including flooding, drought and other effects of global warming), pollution of air, water or soil, loss of amenity and threats to biodiversity.

Environment also extends to the availability and preservation of scarce resources such as fossil fuels, where the issues that arise are often inextricably linked to questions of climate change. Issues of human health are, in general, not considered.

Whose responsibility is the environment?

Arguably, stewardship of the natural environment is the responsibility of everyone. However, there are various factors that make it a particular concern of governments.

In the developed world, governments account for a very significant proportion of total economic activity, with the result that simple arithmetic allocates to them a correspondingly high proportion of environmental responsibility.

Governments by their very nature have some responsibility for the actions of the population at large, because they are in a position to influence or regulate these in a way that no other party can.

And the governments have access to relevant economic and scientific data, and the capability to analyse it exhaustively, to an extent that is very rarely the case for taxpayers - apart from the largest companies.

Talking about companies, what is the role supra-national organisations play in this issue?

Most commentators would probably consider that the actions individuals and companies have been prepared to take as a matter of free choice in order to protect the environment have in the main proved to be insufficient.

The actions of governments, by regulation or by the use of economic instruments such as taxation, tend to be more effective precisely because they remove that element of choice - in the sense that compliance with regulations or payment of tax liabilities in accordance with the law are not optional.

So you believe that governments can affect the environment?

In broad terms, there are many ways in which the actions of governments can be used to bring about environmentally-friendly behaviour by the individuals and companies under their jurisdiction: by regulation, by taxation, by systems of emissions trading, by subsidies, by voluntary agreements, and by persuasion or by provision of information.

Elements of any or all of these may be combined in the pursuit of particular environmental objectives.

Let's talk about taxation first. Why tax?

The various purposes for which taxation is imposed by governments are: to raise revenue; to achieve desired behavioural effects; to redistribute wealth and to implement economic policy.

How do you define environmental taxation?

There are many definitions of `environmental taxes' put forward by the European Union, and jointly by the OECD and the European Environment Agency. In our own study, we considered the various ways in which decisions taken by governments as regards taxation - like any other government or commercial decision - may have environmental impacts. The guiding principle, therefore, is that `there are no environmental taxes; only taxes with environmental effects'.

Any government will need to raise a certain amount of revenue to meet its spending plans. At first sight, it appears preferable that it should raise this from taxing `bads' rather than `goods'; e.g., from environmental levies (taxing undesirable activities such as pollution), rather than from taxes on desirable activities such as labour and saving.

There appears to be, in effect, a rebuttable presumption in favour of environmental taxes.

Following this line of argument, some commentators advocate a wholesale `shift' from taxes on labour and capital to environmental taxes. This is sometimes presented as a `winwin' strategy or `double dividend', where the dual objectives of saving the environment and financing the state are achieved at a single blow.

If it's such a win-win strategy, have the current attitudes of environment taxation changed significantly?

Governments and political commentators have taken a significant interest in environmental taxation in recent years, and a substantial literature exists advocating their adoption and extension. Increasing numbers of taxes that may be specifically identified as having an environmental rationale are being imposed in developed economies. However, in the UK, the EU and the OECD countries, environmental taxes as a proportion both of GDP and of total taxation revenues have fallen in recent years.

The possible reasons for the low `take-up' of environmental taxes could be the disparity between expressed interests in environmental tax, on the one hand, and the level of tax receipts, on the other.

D. MURALI
KUMAR SHANKAR ROY

http://InterviewsInsights.blogspot.com

More Stories on : Interview | Environment | Detaxfication

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Casting a safety net

In defence of Alan Greenspan

Should we be taxed for using the environment?

Streamlining the law on non-deduction of TDS

The 20k fixation

Tax returns of political parties can be made public

Organised retail and food price inflation — Opening the ‘Black Box’

Agflation