“We are the first generation to feel the effect of climate change and the last generation who can do something about it.”
Climate change is the biggest threat that the human population is facing in this current scenario. With the race between the developing nations and the developed nations to grow more that each other we have somewhere lost our planet in that race. The change is so evident that first time in human history we see a shift which is taking place among the international community which is fighting against the sovereign to take action against climate change. Although these policies have become stricter with time we still have a long way to go to actually make an impact as the tussle still continues among states over liability concerning environmental pollution.
Industries, companies and businesses are a major contributor to environmental degradation and must be held liable for their actions. Taxation regime thus is one of the methods which are used by the sovereign in order to curb activities which result in the pollution or pollutants which are harmful for the environment. Provisions under the current taxation regime are formulated to discourage companies and industries to engage in activities which result in pollution or pollution on nature which is harmful to the environment. Green Tax is thus the derivative which is derived form the taxation wherein activities/goods which are by their very nature or the process through which they are manufactured cause environment damage.
Green Tax can thus be defined as “Environmental taxation or pollution tax, popularly known as green tax, refers to the duty imposed on goods and activities that cause environmental pollution with the objective of internalising externalities”. Thus main objective of application of a green tax is to drive the economy towards a cleaner and environment friendly sector which helps in development of economy as well as the environment. The whole idea of sustainable development is thus the guiding principle of Green Tax which works as sanction on the industries to work through sustainable development and not use any activity which results in harm to the environment in the name of profit maximisation.
Green Tax is a part of fiscal measure which is adopted by the states for the purpose of imposing a added cost which may be in the form of charge over certain goods or services who’s production, manufacturing or extraction requires an activity which is harmful for the environment. Green Tax can be levied on the cost of the good or on the cost of its raw material and is generally applicable through a taxation policy.
Green tax has evolved over the years but became a food for thought in the 21st Century when the impact of global warming and climate change became apparent, the International community came into action to formulate a structured international regime which through various international measures keeps a check on the global carbon footprint. Sustainable development is a way forward when in comes to development of the economy because no profit is greater than a risk of diminishing nature which is long term loss for the society as whole. Green Taxation is thus one of major factors wherein goods and services which are harmful to the environment are taxed. This taxation helps into two basic objectives.
1. Taxation of good and service have always been used as fiscal measures by the states to control the demand or supply of a particular commodity in the market in order to ensure balance in the trade therefore by taxing good and services which degrade the environment taxation acts as negative reinforcement on the part of the state to reduce the supply of such a commodity by increasing the overall cost of the specific good or service. Taxation thus helps in controlling the production of such goods and services, indirectly reducing its impact of the environment. Vehicle Tax is one such Tax is imposed on pollution causing vehicles making the overall cost of vehicle more, taxation can also be charged in a positive remark by providing tax rebates or exemption of goods and services which are rather eco-friendly, one such example is the reduced tax rate on e-vehicles, similar policy can be seen while installing solar panels which are often reduced in price due to government rebates
2. Taxation is a form of revenue which is earned by the authority imposing a tax and Green Tax not only helps in controlling the demand and supple chain of the goods and services but also creates a revenue which can be utilised in eco-friendly activities to reduce overall impact on the environment. Green Tax, thus provides with the requisite funds to ensure that activities are undertaken which can ensure a ‘return’ to the environment, examples of such activities would be plantation drive, installation of solar panels could be some the activities undertaken by the state.
Green Taxation is thus can be utilised as an important measure by the government to ensure a proper Tax regime which is in balance with the objectives of the government as well as does not hamper the purchasing power of the consumer, a fine balance should be established so that the main objective of the tax is directed only towards the protection the environment and shall be applicable on industries which qualify the threshold of the tax bloc.
One of the significant inquiries that emerge on the application of Green Tax should be forced when there are laws and guidelines established by the public authority to hold the contamination to a limited aspect. Taxes are frequently viewed as more adaptable than guidelines as the previous purchasers and organizations better choices to reduce environmental pollution. This is just in light of the fact that guidelines principally determine the strategy for diminishing outflows or the limit concerning who ought to lessen the pace of the equivalent and endorse stricter reductions which lead to greater expenses contrasted with charges and doesn’t leave the decision to the firm and shoppers to go for less expensive other options. Moreover, the government by uprightness of these guidelines recommends certain be items for which endowments. Both the above methodologies steer the economy toward a path which is extremely prescriptive of preferring certain natural arrangements over others. Along these lines if charge is forced on certain oil and diesel items which add to an climate change rise in temperatures by their utilisation, at that point it gives organisations and shoppers to make vehicles that utilisation or produce less of the equivalent or urge the later to utilise more eco-friendly vehicles or go for different options like cycling, strolling and public travel or change some other propensity by lessening the need to travel. In a similar circumstance, if there was a guideline set up, it would recommend the base limit of eco-friendliness or give sponsorships that would advantage certain electric vehicles and the resulting impact of the entirety of that would just address and target exceptionally restricted arrangements, denying the individuals of the decision they would get under the tax collection system.
Secondly, environmental policy decisions have vastly changed over the years. Previously, the regulations were strictly targeted whereby certain products were either banned or their usage was limited and once that target was achieved; there was no need to further abate. However, when a tax is imposed, it increases the price of a product or activity in proportion to the environmental harm that it causes. This not only induces the businesses and consumers to take these excess prices into account while making a decision in regard to the manufacture or use of that particular product but also provides a continuous incentive to abate at all levels of emissions. Thirdly, and the most important of all, along with the wide range of flexibility that environmental taxes provide, it also increases demand for low cost alternatives in the market which leads to creating strong incentives to innovate and develop products that cause comparatively less environmental damage; which after all is the primary objective of such levy. Environmental taxes are also more transparent in comparison which is easier to discern and judge the financial impact of the same on businesses and consumers; strict regulations on the other hand have financial impacts which have less clarity, are more complex in nature and are harder to identify
The development of Green Taxation can be traced form the UN Conventions during the early 1970s wherein the world community came up to realise the importance of environment protection. The first plans came into the Sixth Five Year Plan wherein the concepts of Environment assents and Environment action were taken into account for the efforts time on big project. India’s previous Five Year plans were based on rapid development before the sixth five year plan as result of which this plan was the touchstone of development of Environmental Law in India. These measures were based more on the penalty aspect and were restricted to tortious liability and not as a fiscal measure generally adopted in Taxation Regime. The Fist essence can be drawn from the 1992 Tax Reform committee committed by the government which recommended higher rate of interest on production and manufacturing of raw material for the purpose of conversation of environment.
Currently, taxation on the basis of environmental impact can only be traced in various state legislation as a fee charged on by the respective state governments. Some of examples of such have been the Regional Transport Office in Karnataka which has started collecting Green Tax from vehicles which are over 15 years old
Green Tax in form of carbon tax was also introduced in India in July 2010 when a charge of 50 rupees was added as carbon tax on production of coal per metric tonne which was imported in India.
The Indian Government ensured the world community that it was determined to work towards the protection of environment when it farmed the National action Plan In the year 2007 with the aim of promoting sustainable development.
The taxability of these carbon credits was discussed by The Income Tax appellate Tribunal in My Hime Power Ltd vs DCIT wherein the income tax appellate tribunal on the basis of the reading go the Kyoto protocol held that:
“Carbon Credit is in the nature of an entitlement” received to improve the world atmosphere and environment reducing carbon, heat and gas emissions Carbon Credit is not an offshoot of business but an offshoot environmental concerns, no asset is generated due to environmental concerns, credit for reducing carbon emissions, it does not increase profit in any manner is therefore not taxable as capital receipt”
The concept of Green Tax on in the form of ECC was also taken up by the Hon’ble Supreme Court in M.C. Mehta vs Union of India by an order dated 9th October 2015 directed the Government of NCT to collect Environment Compensation Charge from al the heavy vehicles which were entering into Delhi. The order was on the issue of rising Air Pollution in the capital which resulted in wide spread anger among the citizens. This set taken by the Supreme Court of India is an example of judicial innovation in India and using monetary measures for polluting sources i.e. trucks to reduce the flow of traffic within the National Capital Region.
Although several measures have been taken through out country by the respective governments, India still lacks a conclusive form of tax slab which is potent strictly towards environment protection. The Indian judiciary has played the biggest role when in comes to protection of rights of environment and has gone to a great extent to ensure the safety of mother nature, but on the other the hand the legislature and the executive have failed massively when it comes to implementation or even framing of laws which are essential for the protection of environment.
The present day environment protection laws such as the Water Act, Air act and the Environment protection act have no provision of levying any form of tax or charge over the polluting industries, leaving a large gap when it comes to fiscal policies of the government for the purpose of environment protection.
Green tax around the world
The international community has been working towards achieving goals which concede with the working of new regulation which help in reducing the carbon footprint. Carbon tax has been an issue whereby countries like Australia, Japan, Netherlands, Sweden , Denmark have started imposing carbon Tax on polluting goods.
One of the most important documents in the current day and age regarding th measures which ought to be taken to reduce the carbon footprint is the Kyoto Protocol, Convention on Climate Change, The Protocol is an international convention which sets goals to reduce the carbon footprint in the coming ages, and reduce the emissions by taking various steps mention under article 2 of the said convention which states that countries shall works towards reducing market imperfection and work towards reduction of government subsidies on goods and services which produce green house emission.
UK, one of the significant signatories of the Kyoto Protocol of 1997 attempted upon itself an essential objective alongside other European Union (EU) Nations to lessen ozone harming substance emissions.Further to this worldwide objective, the UK embraced its own homegrown objective for CO2emissions in 2000 as a component of the ‘environmental change program’. In 2002, UK Emissions Trading Scheme (UK ETS) was dispatched which gave motivators to organisations to decrease ozone depleting substance outflows by giving instalments if targets are met. The UK ETS is available to two gatherings: ‘direct members’ (DPs) and ‘environmental change arrangement members’ (CCAPs). The principal bunch comprises of organisations that participated in an underlying closeout to set up focuses for outflows decreases in return for motivating force instalments. The subsequent gathering includes organisations that generally had arrangements to decrease energy use in return for a decrease in their environmental change demand installments.
The three essential things in the green tax collection system in the UK are – Transport Taxes, Resource Taxes and Energy Taxes. Transport Taxes are especially convoluted in light of the fact that separated from externalities like hurtful emanations, there are other outer costs, for example, commotion, mishap clog and so forth which should be disguised precisely into the costs paid for motoring and that is certifiably not a simple undertaking. Vehicle Excise Duty is perhaps the main vehicle charges in the UK which is required yearly out and about vehicles relying upon the size of their motor, eco-friendliness, limit or mileage of the vehicle which are the determinant elements of the pace of discharge. Aside from that, there is Fuel Duty which speaks to the single biggest green expense in the UK and is demanded with a plan to empower more productive utilisation of fuel and diminish discharges.
Environment protection is the way forward in the current generation for the protection of not only human life but also ensure that the planet is given to the future generation in a manner which is feasible to live in. Humans should be thankful for their existence and what the nature provides it with in order to grow and cherish over the years. Climate change and its effects are real and have been faced by all humans alike it is high time that countries settle the old age dispute between the developing countries and the developed countries stating that international protocol restricted trade hammers global trade and commerce but what is not understood that this impacts the human existence in the long turn.
Business often disagree with the concept of green tax as it does impact on the business aspect of the company but what is to be taken into account is the fact that these measures are more of a necessity and does not hamper the business aspect specially when it comes to monopolies, with the advancement in technology it is apparent that new forms and alternatives of productions can easily be found in various aspects of the production of goods, initiating an objective be it in the form of Corporate Governance shall be strived by each individual company to ensure thatboth the profits as well as ecological goals are taken into perspective. The idea of sustainable development form each entity be it the state, business, or the consumer taking environment protection and economic growth hand in hand to ensure that none of which it is stopped, it shall be a perfect balance between the two.
Countries are in a race of global supremacy which results in extinguishing of resources and usage of such resources which may never be used again, It is important that all countries come together as humanity and work together to reduce the level of pollutants in the environment before its too late.
Taxation as fiscal measures have been used by sovereign states since time immemorial to control the market of any product and with the rapid industrialisation during the 1900s consequent to the Industrial revolution and discoveries around the world it is more that important now that this step is taken to reduce carbon emission. Taxes must be levied on the basis of the output of pollutants in environment and must be in terms with extent of pollution. It is also important that a conclusive policy is farmed around the taxation of Green Tax which is national in nature and is similar on products of same nature because of which more options are given to consumers.
The concept of Green Taxation should followed by all the countries alike specially countries like China which have been previously accused by the International community of hiding important data. China has been the biggest contributor of pollutants and continues to be one of the largest emitters of green house gases.
The most important factor in reducing climate change is the importance of public participation, it is important as consumers, business houses to re-consider the process which are harmful to the environment and be changed in a manner which is more inclined towards a eco friendly procedures, it is important for consumer to come up raise voices and force respective governments to work towards a policy which not detrimental to the environment, it is important that public as consumers should look for an alternative when it comes consumer goods which are known for polluting the environment and look for substitutes which would work towards a better future.
It is also important that the revenue which is collected from such tax regimes shall also be utilised in a manner which is ecological viable of the society, the revenue so gained from such taxes should only be used in activities which reduce the impact of activities on the environment, such activities should also be held in place by the government in order to achieve a balance among the economic development and environment protection, promotion of eco-friendly goods shall be promoted among customers along with tax subsidies which shall be provided by the respective governments in order to increase the demand of goods which are rather less polluting.
Taxation Policy thus has been in the process of development wherein majority of developed countries have been using these measures to reduce their carbon footprint but also developing countries which are catching up of various new laws to reduce carbon footprint in the near future.
The efforts on the part of India can be noted in the recent RIO+20 summit wherein the inputs given by India regarding green taxation it held that:-
“Eco tax reform is based on polluter pays principle i.e. the polluter pays the cost of environmental damage he imposes on the society. The eco-tax reform initiated in India includes and fiscal initiatives like tax exemptions, concessional taxes and Lower taxation for certain environment friendly goods. There is no ‘one size fits all’ solution on eco-tax reforms and countries may develop national appropriate policies”
1 A Historic Commitment to Protecting the Environment and Addressing the Impacts of Climate Change, https://obamawhitehouse.archives.gov/the-record/climate (last visited 14th January 2021)
2 Sebastian J. Miller & Mauricio A. Vela, Are Environmentally Related Taxes Effective?, IDB Working Paper Series No. IDB-WP-467 (November 2013) (https://www.cbd.int/financial/mainstream/idb-tax.pdf)
3 Usha Tandon, Climate change Law, Policy and Governance (Eastern Book Company)
5 My Home power Ltd vs. DCIT 151 TTJ 616
7 M.C. Mehta vs Union of India (2016)2 SCC 33
8 “order directed levy and collection of ECC at the following rates: (i) The Category 2 (light duty vehicles etc.) and Category 3 (2 axle trucks) at the rate of Rs.700/- per vehicle; (ii) Category 4 (3 axle trucks) and Category 5 (4 axle trucks and above) at the rate of Rs.1300/- per truck. “
9 “Each Party included in Annex I, in achieving its quantified emission limitation and reduction commitments under Article 3, in order to promote sustainable development, shall (a) Implement and/or further elaborate policies and measures in accordance with its national circumstances, such as Implement and/or further elaborate policies and measures in accordance with its national circumstances, such as Enhancement of energy efficiency in relevant sectors of the national economy, protection and enhancement of sinks and reservoirs of greenhouse gases not controlled by the Montreal Protocol, taking into account its commitments under relevant international environmental agreements; promotion of sustainable forest management practices, afforestation and reforestation, Research on, and promotion, development and increased use of, new and renewable forms of energy, of carbon dioxide sequestration technologies and of advanced and innovative environmentally sound technologies Progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments, Encouragement of appropriate reforms in relevant sectors aimed at promoting policies and measures which limit or reduce emissions of greenhouse gases not controlled by the Montreal Protocol”
10 “The Parties included in Annex I shall strive to implement policies and measures under this Article in such a way as to minimize adverse effects, including the adverse effects of climate change, effects on international trade, and social, environmental and economic impacts on other Parties, especially developing country Parties and in particular those identified in Article 4, paragraphs 8 and 9, of the Convention, taking into account Article 3 of the Convention. The Conference of the Parties serving as the meeting of the Parties to this Protocol may take further action, as appropriate, to promote the implementation of the provisions of this paragraph”
11 Aratrika Deb, Green Tax, 1 National Journal on Environmental Law , 30-38 (2018), http://lawjournals.stmjournals.in/index.php/jel/article/view/47/44 (last visited Jan 15, 2021)
12 ibid 13National inputs of India for RIO+20 , https://mea.gov.in/Images/pdf/Rio20_outcome_document.pdf (last visited Jan 15, 2021)