Due to the on-going global recession and economic uncertainty, governments are looking to environmental taxation as a possible way to bolster tax revenues. ACCA says that for this to happen successfully, governments need buy-in from business and their electorates.
Chas Roy-Chowdhury, author of the report and head of taxation at ACCA says: 'Tax shifting to environmental taxation cannot both solve the environmental crisis and raise significant tax income long term. This is because a system aimed at reducing what it is taxing, if successful, will eventually destroy its own tax base.'
ACCA’s paper offers a number of recommendations about green taxation, asserting that first and foremost a global approach to green taxation is needed.
Chas Roy-Chowdhury explains: 'Environmental taxes are an efficient but controversial way for governments to raise revenue. Most agree that making the polluter pay should be a principle of a modern tax system. But this needs to be done with care – especially to avoid companies relocating and taking the pollution problem with them.'
Recommendations in ACCA’s s paper include:
- Incentivise environmental goals, for example by reducing VAT on sustainable products
- Governments should be as transparent as possible about green taxation, and they need to run public awareness campaigns to influence and speed up change – for instance with energy efficiencies
- Governments should also consult widely before any policy changes are made, and prepare to reverse any changes if unintended consequences happen
- Environmental taxes should be made more explicit and transparent, with costs and benefits analysed and assessed
Chas Roy-Chowdhury adds: 'ACCA questions how resilient environmental taxes will prove to be in the future. But we also believe that governments must use tax policy as an instrument of positive change by incentivising investment in new cleaner technologies across a wide range of industries.
'This can only be of benefit to business – it has to remembered that cutting carbon usage can also create competitive advantage for business. Even in the midst of a financial crisis, consumers view environmental issues as important to their purchasing decisions and a business’s credentials on environmental issues has a significant impact on consumer buying choices.'
Chas Roy-Chowdhury concludes: 'Environmental taxation, which was almost unheard of 25 years ago, is now being widely used to assist in the fight against climate change, with taxes around the world on everything from emissions trading, plastic bags to energy consumption, car use and waste disposal. Business understands that ‘business as usual’ is no longer an option; but to endure a competitive and attractive economy in which to invest, green taxes need to be, clear, credible and certain.'