The inception of green taxes can be traced back to the early 20th century when certain nations pioneered tax policies to incentivize the adoption of cleaner and more sustainable technologies. However, it wasn’t until the 1970s, marked by the rise of environmental movements and escalating concerns about the environmental impact of human activities, that the concept gained substantial momentum.
In the early 1990s, Europe saw the emergence of the concept of “ecological tax reform,” a strategic approach aimed at shifting the tax burden from labor and capital to natural resources and pollution. Advocates of this reform contended that such policies could yield dual benefits—favorable environmental outcomes and the promotion of sustainable development, all while stimulating economic growth.
Denmark took a pioneering step in 1992 by becoming the first country to implement a comprehensive green tax reform program. This initiative encompassed a spectrum of taxes targeting energy consumption, waste disposal, and emissions from transportation. Encouraged by Denmark’s example, other European nations, including Germany, Netherlands, and Sweden, followed suit in the late 1990s, introducing similar reform measures.
Since these early endeavors, the global landscape has witnessed a surge in the popularity of green tax policies. Numerous countries have either introduced new environmental taxes or augmented the rates of existing ones. The significance of green taxes in combating climate change and fostering sustainable development has garnered attention on the international stage, with the United Nations and other global organizations emphasizing their pivotal role in addressing pressing environmental challenges. As we navigate the 21st century, the evolution and expansion of green tax initiatives stand as a testament to the growing recognition of their instrumental role in shaping a more environmentally conscious and sustainable future.
An environmental tax, also known as ecotax or green tax, is imposed on activities deemed environmentally harmful to encourage eco-friendly practices through economic incentives. The carbon tax is a notable example, and such policies can serve as alternatives to or supplements for regulatory approaches. Some proposals aim to sustain overall tax revenue by reducing other taxes, like those on human labor and renewable resources, in a shift toward ecological taxation. Ecotaxes aim to rectify the market’s failure to account for environmental impacts.
Examples of potential ecotaxes include:
1. Carbon taxes targeting the use of fossil fuels to curb greenhouse gas emissions, distinguishing from traditional hydrocarbon taxes.
2. Import duties on goods with significant non-ecological energy input, ensuring fair treatment for local manufacturers.
3. Severance taxes on the extraction of minerals, energy, and forestry products.
4. License fees for outdoor activities like camping, hiking, fishing, and hunting, along with associated equipment.
5. Specific taxes on technologies and products linked to substantial negative externalities.
6. Waste disposal taxes and refundable fees to promote responsible waste management.
7. Steering taxes addressing effluents, pollution, and hazardous wastes.
8. Site value taxes based on the unimproved value of land to encourage sustainable land use.
The objective of a green tax shift often involves implementing “full cost accounting” or “true cost accounting” through fiscal policy to internalize market-distorting externalities, promoting sustainable wealth creation. This broader approach is sometimes referred to as ecological fiscal reform, notably in Canada, or as an eco-social market economy in certain countries.
Tax shifting aims to balance taxation levels for revenue neutrality while maintaining overall progressiveness. Measures are often included to protect vulnerable populations, such as raising minimum income thresholds for income tax filing or increasing pension and social assistance levels to offset higher fuel costs.
While basic economic theory acknowledges externalities and their potential negative effects, setting the correct taxation level or the tax collection system to address them is challenging and may lead to unintended consequences. Consumption taxes, following the “feebate” approach, can incentivize sustainable choices by imposing fees on less eco-friendly products and subsidizing greener alternatives.
These taxes may drive changes in habits, capital investments, or corporate decision-making, impacting return on investment for projects. For major consumer purchases, concepts like a “green mortgage” recognize and reward energy-efficient lifestyles, fostering upgraded housing with minimal energy use. This shift not only benefits consumers but also boosts real estate valuations, promotes local communities, and reduces dependence on commuting, contributing to a more sustainable and localized lifestyle.
Environmental Tax and Benefits
Objective: The primary goal of environmental taxes is to mitigate and reduce the utilization of harmful substances, activities, or the depletion of resources.
Components: Environmental tax reforms typically encompass three key elements:
1. Elimination of existing subsidies and taxes with adverse environmental impacts.
2. Restructuring existing taxes to support environmental goals.
3. Introduction of new environmental taxes.
Justification: Treating the promotion of the environment as a public good implies financing it through general tax pools, including environmental taxes.
Intended Advantages: Implementing environmental taxes in India is anticipated to yield widespread benefits, including:
Environmental:Encouraging environmentally responsible decisions by increasing the costs associated with polluting inputs and outputs.
Fiscal: Mobilizing revenues for essential public services, especially when alternative revenue sources pose challenges.
Status of Environmental Tax in India
– Under the Forest Conservation Act (1980), entities diverting forest land for non-forest purposes must provide financial compensation for afforestation.
– The creation of a Compensatory Afforestation Fund ( CAF ) was mandated by the Supreme Court in 2002.
– India’s Clean Environment Cess acts as a carbon tax, levied on coal, lignite, and peat, with funds managed by the National Clean Environment Fund.
Associated Challenges
Inflationary Effect: Environmental regulations may impose costs on the private sector, potentially leading to increased prices.
Diversion of Funds: Taxes for environmental purposes often face diversion or underutilization, impacting their intended environmental considerations.
Competitiveness Impact: Additional costs on local producers may affect their competitiveness.
Assessment of Externalities:Determine the environmental tax rate based on scientific assessments of the negative externalities associated with production, consumption, or disposal.
Provisioning: In developing countries like India, utilize revenue for environmental public goods and address environmental health issues.
Better Targeting: Environmental taxes in India can focus on vehicles, energy, and waste generation for more effective outcomes.
Environmental-Fiscal Reforms: Integrate environmental taxes into the Goods and Service Tax framework, as suggested by the Madras School of Economics.
The escalating impact of population growth on the environment, marked by resource depletion and heightened pollution, underscores the necessity for environmental taxes. Green taxes play a pivotal role in discouraging environmentally harmful practices and addressing issues such as greenhouse gas emissions, climate change, health risks, and economic consequences.
Environmental taxes are essential not only for safeguarding the environment but also for fostering energy conservation, encouraging the adoption of renewable sources, internalizing negative externalities, promoting innovation in sustainability among companies, and discouraging anti-ecological behaviors. Moreover, these taxes serve as a revenue source for governments, enabling the execution of environmental projects or facilitating reductions in other taxes.
India’s Status on
Environmental Taxation
A Step towards Green world: An Analysis of Green Tax
India is one of the most polluted countries in the world. The Guardian reported a study revealing the premature death of almost 17 lakh people as a direct or indirect result of pollution in 2019. Therefore, in a bid to cut down on vehicle emissions and pollutants, the Indian Government introduced a specialized taxation system, known as green tax. As per the Latest update, the Central Government has proposed to charge a green tax on the renewal of registration certificates of personal vehicles after 15 years. The center has also proposed a lower green tax for commercial vehicles and a higher green tax for vehicles plying in highly polluted cities across the country.
MCA releases National Guidelines on responsible Business Conduct
The Ministry of Corporate Affairs has revised the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 (NVGs) and formulated the National Guidelines on Responsible Business Conduct ( NGRBC ). These guidelines urge businesses to actualise the principles in letter and spirit. These principles are: Businesses should conduct and govern themselves with integrity in a manner that is Ethical, Transparent and Accountable. Businesses should provide goods and services in a manner that is sustainable and safe Businesses should respect and promote the well-being of all employees, including those in their value chains. Businesses should respect the interests of and be responsive to all their stakeholders. Businesses should respect and promote human rights. Businesses should respect and make efforts to protect and restore the environment. Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent. Businesses should promote inclusive growth and equitable development. Businesses should engage with and provide value to their consumers in a responsible manner.
GST beneficial to Coal Consumers, says Piyush Goyal
In pre GST regime there was Excise Duty on Coal @ 6% , Stowing Excise Duty @ Rs. 10 per tonne of coal production, VAT@ 5% (on intra-state sale), Central Sales Tax @ 2% (on inter-state sale, on submission of Form C). Post implementation of GST all the above mentioned taxes and levies have been subsumed and GST @ 5% is being charged to consumers. This was stated by Piyush Goyal, Minister of State (IC) for Power, Coal & New and Renewable Energy and Mines in a written reply to a question in the Lok Sabha today.
Government doubles Rate of Green Tax
The Government of India has doubled the rate of Clean Energy Cess in Budget 2016-17. The effective rate of Clean Energy Cess (now renamed as Clean Environment Cess) levied on coal, lignite and peat was increased from Rs.200 per tonne to Rs.400 per tonne in Budget 2016-17 with effect from 01.03.2016, for financing and promoting clean environment or clean energy initiatives and funding research in the area of clean environment or clean energy. Clean Environment Cess also acts as green tax, on the lines of polluter pays principle.
“India’s Green Tax Laws for Environmental Sustainability”
1. The Water (Prevention and Control of Pollution) Act, 1974: Regulating water pollution, it imposes penalties, including green taxes, on non-compliant industries.
2. The Air (Prevention and Control of Pollution) Act, 1981: Addressing air pollution, it mandates penalties and green taxes for industries violating its provisions.
3. The Energy Conservation Act, 2001: Encouraging energy efficiency and renewable sources, it allows for green taxes on industries with excessive energy consumption.
4. The National Green Tribunal ( NGT ) Act, 2010: Empowering the NGT to adjudicate environmental damage, it authorizes the imposition of green taxes on polluters.
5. The Goods and Services Tax ( GST ) Regime: Imposing taxes and cess on goods causing environmental harm, such as coal, oil, and plastic.
Institutions advocating green taxes include:
Central Pollution Control Board ( CPCB ): Authorized to impose penalties, including green taxes, on entities causing environmental pollution.
Ministry of Environment, Forest and Climate Change ( MoEFCC ): Formulates policies emphasizing green taxes for environmental conservation.
National Green Tribunal: Resolves environmental disputes and can levy green taxes on violators.
National Clean Energy Fund: Generates revenue through green taxes on coal for promoting clean energy technologies.
Despite these efforts, challenges persist:
Political Will: Demanding strong commitment for comprehensive planning and enforcement.
Public Resistance: Potential opposition due to perceived tax burden.
Lack of Awareness: Addressing the need for public education on the benefits of green taxes.
Enforcement Issues:Requiring robust auditing and monitoring mechanisms.
Corruption:Vigilance needed to prevent corruption in the implementation of green tax schemes.
Inter-State Disputes: Possibility of conflicts between states and the central government.
Structural Challenges:Designing a uniform green tax amid diverse industries and regions.
Data Availability:Dependence on reliable data, highlighting weaknesses in India’s data infrastructure.
Recent State-wise regulations for Green Taxation
In Thiruvananthapuram, Kerala’s Finance Minister, T.M. Thomas, unveiled a revised budget proposing a 10% green tax on vehicles exceeding ten years for transport and fifteen years for non-transport. The aim is to discourage the use of older vehicles and curb pollution. State Transport Minister S. Ananthakrishnan supports this move, adding that non-compliance with the tax will result in ineligibility for Motor Vehicle Department services.
Kerala’s proposed green tax structure for vehicles is as follows:
Transport Vehicles (annually):
Non-Transport Vehicles (every five years):
With nearly 1 crore registered vehicles in Kerala, the state anticipates generating Rs. 8 Crore in revenue by re-registering old vehicles under the green tax. This move is expected to transform the landscape of automobile usage, reducing noise and air pollution while enhancing safety. The tax will also be applicable to non-state vehicles at check-posts, with non-payment leading to a penalty of Rs. 100, increasing to Rs. 300 for repeated offenses.
However, the Chairman of Maruti Suzuki criticized the tax, stating that it deviates from the objective of fostering employment and growing the manufacturing sector. He expressed concerns that such taxes on manufactured goods could hinder industry growth, potentially impacting Kerala’s appeal as an investment destination.
The Maharashtra Government’s cabinet has approved the imposition of a green tax on private vehicles aged over 15 years and commercial vehicles in operation for at least 8 years. This measure is expected to be implemented before the end of the year. Private vehicle owners will face varying rates, with two-wheelers at ₹2,000, petrol vehicles at ₹3,000, and diesel vehicles at ₹3,500, payable every 5 years. The tax aims to encourage the removal of older non-classic vehicles. Commercial vehicles over 8 years old will also be subject to the tax, with rates ranging from ₹750 for autorickshaws to a percentage-based system for those over 7500 kg capacity. While these measures may increase the cost of owning classic and vintage cars, they are designed to promote the adoption of newer, safer, and cleaner vehicles in the commercial sector.
The Karnataka forest department has introduced a green tax, collecting Rs 10 for two-wheelers and Rs 20 for four-wheelers entering BR Hills through BRT Tiger Reserve. Certain vehicles are exempt, affecting tourists visiting the BR Hills temple.
In Himachal, vehicle owners getting pollution certificates now face an additional green tax. The state raised fees and security deposits for pollution checking centers in an effort to combat environmental issues.
Union finance minister Nirmala Sitharaman criticized developed countries imposing cross-border adjustment taxes for green commitments, calling it morally wrong. The February budget is a vote on account, with the full budget to be presented in July after elections.
Minister clarified that the February budget serves to cover government expenditures until a new government takes office. Major policy announcements are typically avoided during this period, and the detailed Economic Survey is not presented. Emphasizing the need for inclusive global cooperation, Sitharaman opposed unilateral decisions on green goals. She argued against cross-border taxes benefiting one country’s green agenda at the expense of others.
The Carbon Border Adjustment Mechanism ( CBAM ), a carbon tax on imports, is set to be implemented from January 1, 2026. Sitharaman expressed reservations about its implications and highlighted the importance of equitable renewable energy distribution for global sustainability.
In summary, the implementation of a green tax system in India necessitates addressing multifaceted challenges, showcasing political will, and establishing effective monitoring mechanisms.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
