GREEN TAXATION

Introduction: The mother earth provides natural resources such as minerals, coal, petroleum, iron, wood etc. that are used by the business houses to earn wealth. Nature has given so much to the mankind in the form of natural resources that are being exploited by mankind ruthlessly without having any concern for the environmental damage and sustainability challenges that our future generations are likely to face. Global warming has brought a big corner for environmental issues in almost all the countries specially in developing countries like india where pollution control mechanisms are found to be ineffective. However, With the rise in people’s awareness about the severely negative impacts of environmental pollution and subsequent climate change, federal governments all across the world seem to have woken up to fight for this cause. Off late there has been a rising interest for enacting governance policies of sustainable development in order to mitigate environmental degradation and the ever-rising rates of pollution. Inhuman approach to manage global warming can destroy the efforts of the rest of the world thus, a humane approach needs to be developed for saving our mother earth.

What is Green Tax?

It is an environmental tax that aims at ensuring that polluters are duly punished for their activities that deter the environment by charging them a direct tax on the emissions so as to discourage such activities which have harmful effect on the environment.

Polluter needs to pay.

Why is it needed?

1. According to economic theory, charging taxes on emissions that cause pollution will lower environmental impairment in a cost effective manner by encouraging behaviour changes in households and firms that need to decrease their pollution. Green tax reforms are popular in some circles not only because of their direct effect on reducing pollution but also because their revenue capacity may allow reducing other more distortional taxes.
2. Taxes directly address the market failure that causes markets to ignore environmental impacts. A well designed environmental tax increases the price of a good or activity to reflect the cost of the environmental harm that it imposes on others. The cost of the harm to others – an “externality” – is thereby internalised into market prices. This ensures that consumers and firms take these costs into account in their decisions.
3. Taxes leave consumers and businesses with flexibility to determine the least-cost way to reduce the environmental damage. The environmental tax provides a greater range of abatement options than instruments such as a regulation requiring a minimum fuel efficiency level for vehicles or a subsidy that privileges electric vehicles, which target only some solutions. 

Green tax shift:

Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes (e.g. taxes on human labor and renewable resources); such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts. It focuses on changing the structure of taxation without putting additional burden on taxpayers. Government tries to reduce the use of resources and thereby pollution, by making them more expensive. At the same time, facilitating the reduction of distortionary taxes on labour and capital, making them cheaper.

How to design Eco-taxes(Green Tax):

• Environmental tax bases should be targeted to the pollutant or polluting behaviour, with few (if any) exceptions.
• The scope of an environmental tax should ideally be as broad as the scope of the environmental damage.
• The tax rate should be commensurate with the environmental damage.
• The tax must be credible and its rate predictable in order to motivate environmental improvements.
• Environmental tax revenues can assist fiscal consolidation or help to reduce other taxes.
• Distributional impacts can, and generally should, be addressed through other policy instruments.
• Competitiveness concerns need to be carefully assessed; coordination and transitional relief can be effective responses.
• Clear communication is critical to public acceptance of environmental taxation.
• Environmental taxes may need to be combined with other policy instruments to address certain issues.

References:

1. Internet
2. www.oecd.org
3. https://en.m.wikipedia.org/wiki/Ecotax
4. www.bankbazaar.com
5. www.researchgate.net