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Saturday, November 1, 2008
How green is your valley?

"Green” or “eco” taxes have a supplementary role to play in providing economic incentives, or disincentives, in the global challenge of promoting ecologically sustainable activities and deterring those which are ecologically harmful.
The so-called green political parties used the promise – or threat – of these taxes in their campaigns, but these ecological issues are no longer the realm of the “fringe” interest groups and are now part of the political mainstream.
Paul de Chalain, PricewaterhouseCoopers SA tax partner says that in many countries, there has been a significant shift toward ecology-supportive tax policies. “But as part of this trend, it is widely accepted that green taxes cannot just be added to the existing mix of taxes. To be acceptable they should be tax-neutral in their overall impact.”
The best way of achieving this tax-neutrality, says De Chalain, is for green taxes to take the form of new consumption taxes, balanced by tax rebates or other relief for making use of ecologically-friendly sources of energy. “For example, a tax on fuel-guzzling sports utility vehicles should be used to fund a rebate on the licence fees of fuel-efficient vehicles.”
De Chalain says there are several examples of possible eco-taxes. “These would include taxes or levies on the use of fossil fuels that produce greenhouse gases, including the sale of petrol; the sale of plastic bags, which are a major pollutant; and on activities such as the extraction of minerals or timber, fishing, air travel and garbage disposal.”
Green tax exemptions or incentives in the form of zero or reduced tax on the sale of renewable sources of energy such as solar panels could counter the additional taxes imposed.
De Chalain emphasises that it is important green taxes are not fiscally regressive. “This is difficult to achieve since any consumption tax, such as a levy on petrol, is payable at the same rate by all consumers, and therefore impacts more harshly on the poor.
“However, this can be countered to a degree. If government taxed modest consumption of for example, domestic water and electricity, at low or even zero rates, where poor households have relatively low usage, they could tax greater consumption by more affluent households at a higher rate.”
De Chalain says that invisible off-sets can also occur. “Taxes imposed on air polluting industries can indirectly contribute to improving the health of nearby communities and could reduce school and work absenteeism due to a decline in respiratory illnesses. However, such benefits take a long time to become evident and are difficult to quantify.”

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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