The Hindu Business Line : Effectiveness of environmental taxes

Factories in China pump pollution into the air and waterways, without having to pay for the impact of their activity on the environment. Shoppers in Tokyo or New York eat their lunch out of throw-away plastic containers, and they put the packaging in the rubbish to be picked up for free by the municipal authorities. Though the factories or the shoppers don’t pay, there is a cost to society, reminds a new book from Sage ( www.sagepublications.com ): Understanding Environmental Issues edited by Susan Buckingham and Mike Turner.

“Sometimes taxpayers are forced to pick up the tab by funding government spending on pollution control, or they may pay indirectly, for instance by funding treatment for asthmatic patients through their health insurance premiums.”

More worryingly, as the quality of the environment declines, it is the poorest and the most vulnerable, not to mention future generations, who end up paying the highest price, the authors rue.

They suggest that environmental taxes are one answer to the above market failure. Such taxes make the polluters pay and thus internalise environmental externalities, revealing the true social costs of production in prices.

“Examples of environmental taxes include carbon taxes (where industry is taxed for every unit of carbon dioxide emitted, which incentivises firms to find energy-efficient and low-carbon alternatives), congestion charges (where motorists pay a fee for entering the ‘congestion zone,’ which encourages them to make fewer journeys in these areas), and fuel duties (where petrol is taxed to encourage motorists to buy more fuel-efficient cars or use their cars less frequently).”

Important read.

Advantages of APA

An effective way to minimise transfer pricing disputes is APA (advanced pricing agreement), opines Radhika Suri in Fundamentals of Indian Transfer Pricing ( www.taxmann.com ).

For instance, in the US, the Internal Revenue Service regards the transfer pricing method at arm’s length once an APA is adopted, the author mentions. “In Australia, the taxpayer is assured that no adjustment to their transfer pricing method will be made if an APA is complied with.”

The UK’s tax authorities acknowledge that APAs provide certainty to multinational corporations in structuring their complex tax affairs.

These agreements save costs too and are, therefore, economically justifiable, especially when there is a large volume of transactions. And there are ‘mini APAs’ in the US, to protect taxpayer against penalty, though not against IRS adjustments.

In contrast, the average company in India has 10 to 11 assessment years locked in tax disputes, the author observes. “Statistical analysis shows that one extra disputed year raises legal compliance cost by 7 per cent. The time taken to close an assessment varies from two years to twenty years if the tax dispute goes to the Supreme Court.”

Lucid explanation.
Ride the big wave

India has a huge potential for conducting clinical trials and bioequivalence studies as costs of conducting such trials are low, avers Indian Pharma and Life Science Industry – Legal and Tax Framework from Nishith Desai Associates ( www.cchindia.co.in ). “A drug could be tested in India at a rate which is 50 to 60 per cent cheaper than in the US.”

However, there are issues that act as hurdles, the authors add. “The compulsory licensing regime, absence of data exclusivity and the accessibility to an effective and organised distribution network are some such issues.”

They see a big wave in the industry, considering the huge investment that the global pharmaceutical companies have put into India, and the fact that organisations like the Gates Foundation are set to pump in large sums of money to develop anti-HIV drugs in India.

For an in-depth industry view, from a professional standpoint.

D. MURALI
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