Green Tax : Towards An Environmentally Friendly Tax Structure
01 June 2006
Posted by: TaxFind™
Green Tax: Towards An Environmentally Friendly Tax Structure
Whether you call it green tax, eco tax or environmental tax, the fact remains that tax intended to promote ecologically sustainable activities via economic incentives is definitely on the cards for South Africa.According to a policy paper currently up for public discussion by the National Treasury (www.treasury.gov.za), the South African government is considering a range of green taxes to support actions to clean up the environment.The paper suggests possible taxes on coal consumption by the electricity industry or product taxes on goods such as batteries or packaging, in order to reduce waste.
The proposals are at discussion phase and will be subject to further investigation.This move comes at a time when new legislation, approved by Cabinet, was tabled in Parliament to put an economic value on waste.It is hoped that this legislation will discourage dumping and reduce the amount of waste trucked to landfill sites.
According to the discussion document, the National Treasury believes that, where appropriate, environmentally-friendly taxes could have an important role to play in South Africa's future tax policy.It also states that environmental tax can play a role in meeting current and future environmental challenges, while improving the efficiency and equity of the tax system.
Possible sectors that are earmarked for green taxes include a tax on the use of coal as an input into electricity generation.This will create incentives for improved coal conversion ratios in the long run and indirectly reduce harmful emissions of carbon, sulphur and particulates into the atmosphere. Staying on matters electrical, a fuel input tax would exclude electricity generated by environmentally beneficial forms such as solar or wind energy.Even though South Africa, as a developing country is not bound by the Kyoto Protocol's targets to cut emissions of green-house gases that have been linked to climate change, the government would like to be seen playing a proactive role in this regard.
Other sectors where green taxes are considered include water provision, farming and forestry. "Allowing farmers to deduct their costs incurred in expanding production and infrastructure in these sectors creates a perverse incentive that potentially undermines the conservation of South Africa's biodiversity," says the paper. It continues to state that arguably such unrestricted agricultural and forestry expansion should be discouraged, possibly via the tax system.
Historically, green tax or eco tax has been a fiscal policy proposed by Green political parties to promote ecologically sustainable activities via economic incentives. Sustainability is usually defined in terms of the depletion of natural and non-renewable resources. An eco tax would increase the cost of using these resources while at the same time proportionately reducing taxes on human labour and renewable resources.
Ecological fiscal reform, also known as the green tax shift towards ecological taxation, is viewed as a policy shift which compliments or averts the need for regulatory approaches.What could be taxed through environmental taxation? Examples of eco tax around the world include taxes on carbon emissions from the use of fossil fuels, taxes related to mineral, energy and forestry excavation activities, taxes on licence fees for fishing and hunting, garbage disposal, effluents, hazardous waste and more.
On the international front, environmental tax is nothing new. Since 1999 the German government has set itself the goal of so-called environmental modernisation, through which natural resources are protected while promoting employment and sustainable economic growth.The central policy aimed at achieving this goal lies in environmental tax reform.It is the German government’s belief that raising the price of oil, gas and electricity causes a change in demand for energy and sources of energy.This simple principle results in the steering effect of the eco tax.The eco tax revenue is used almost entirely to lower and stabilise non-wage labour costs.This then leads to the support of job market reforms
Germany is by no means alone in using tax policy to advance environmental goals.Denmark, Sweden, Norway and Finland introduced their own ecological tax reforms in the 1990s.Great Britain has automatically raised its fuel tax by six percent every year since 1993 – on an openended basis.Italy also launched an ecological tax reform in 1999 and funnels the revenues it generates back into lowering ancillary wage costs, just like in Germany where they have fallen by 0.8 percent.
The majority of EU member states have embraced the principle of gearing taxation to environmental considerations.The nations of Eastern Europe are also taking this path.Slovenia became the first candidate for accession to the EU to introduce a tax on CO2 emissions in 1997.
South Africa is on the verge of moving into the green tax arena.The reaction of industry on the discussion document on environmental tax is eagerly awaited in the coming months.
Source: By TaxTALK