Governments must redesign the tax system to support the fight against climate change

The tangible effects of climate change are an ever-growing challenge that society has to face. In a fast changing world, tax systems need to adapt too. And tax has an important part to play in tackling the unrelenting pace of climate change.

In a report released today – Tax as a force for good: Rebalancing our tax systems to support a global economy fit for the future - ACCA (the Association of Chartered Certified Accountants) calls on governments to rethink the design of the tax system holistically. The report proposes a ‘tax evolution’: increasing taxes on pollution and natural resource use, and reducing the tax burden on labour.

Specific tax measures, such as a carbon tax, landfill levies or taxes on single-use plastic, may help but they are no longer enough. In order to craft a tax system that is fit for the 21st century, it is necessary to think more widely about what governments should be taxing, and how the tax revenues should be used.

ACCA’s corporate reporting and tax manager, Yen-pei Chen, says:

‘During the week of the 24th Conference of the Parties, we are urging governments to rebalance the tax system to allow countries to meet their carbon reduction targets.

‘Governments need to put a price on pollution and resource-use, starting with abolishing fossil fuel subsidies and pricing carbon emissions. Tax revenues can be used to reduce taxes on labour and increase social protection, in particular addressing the needs of lower-income households.

‘Lowering the labour tax burden will help governments to achieve their UN Sustainable Development Goals, by getting more people into decent work.’

Yen-pei Chen continues:

‘Businesses are already paving the way and staying relevant for the future, by applying internal carbon and water pricing. The business case to act now is clear: achieving the UN Sustainable Development Goals can open up at least $12 trillion of market opportunities across the world in different sectors, according to the Business and Sustainable Development Commission.’

Femke Groothuis, president of the Ex’Tax Project says:

‘According to the OECD, more than half of all greenhouse gas emissions are related to materials management activities. It is therefore key to shift to a circular economy: a carbon-neutral and regenerative model in which products are made to be made again.

‘When pollution and primary resources are tax-free (and even subsidised) and labour costs are high, businesses face a barrier to scale up inclusive circular activities. Shifting the tax burden from labour to resource-use, including CO2-emissions, will therefore be crucial to achieving the circular and climate ambitions set by governments and businesses.’

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About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 208,000 members and 503,000 students in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 104 offices and centres and more than 7,300 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

ACCA has introduced major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. More information is here: www.accaglobal.com

About the author

Femke Groothuis is co-founder and president of The Ex’tax Project (www.ex-tax.com), a think tank focused on fiscal innovations to boost the SDGs and the circular economy. The foundation works with experts and business leaders to enhance understanding of the dynamics of a tax shift from labour to natural resource use and pollution. Groothuis is an analyst, adviser, publicist and public speaker. Between 1999 and 2009, she was Investment Manager at Ex’tent Green Venture Capital, a Dutch impact investment fund.