Environmental Tax

By : Neha Dhyani

Updated : Apr 27, 2022, 4:33

Governments worldwide levy taxes on their citizens to generate revenue to run the country. This revenue is used to undertake projects and run programs that improve citizens' standard of living. Environmental Tax is one of the taxes that has gained prominence recently.

Environmental Tax - Overview

The last few decades have seen immense growth in all sectors of business. This growth, however, came with a cost. We started rapidly polluting the planet and seriously damaging the environment.

While taxes, in general, are levied to generate revenue, Environmental Tax is levied for a different reason. These taxes are used to penalize companies that follow practices harmful to the environment. They are also used as an incentive for companies that follow environmentally-friendly practices.

Types of Activities Environmental Tax Covers

There are broadly four areas covered by the Environmental Tax to discourage environmentally damaging practices. These four categories are energy taxes, transport taxes, pollution taxes, and resource taxes:

  • Energy Taxes

Energy taxes are levied to efficiently encourage individuals and companies to use energy, especially fossil fuels. This type of tax is a major revenue generator for the governments where clean energy is yet not a mainstream option.

  • Transport Taxes

Transport taxes are levied to encourage people to make environmentally friendly choices. Taxes on private transport will encourage people to use public transport more, reducing the carbon footprint.

  • Pollution Taxes

Pollution taxes are levied to penalize companies that have poor waste management systems. It is used to discourage individuals and companies from polluting the environment. Effective waste management systems and reduced pollution are given tax breaks to encourage the right behavior.

  • Resource Taxes

Resource taxes are levied to preserve the natural resources of a country. Natural resources are limited and take decades and sometimes centuries to replenish. To protect these natural resources, taxes are levied on individuals and companies for using these.

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Ways of Levying Environmental Taxes

There are two ways in which Environmental Tax is levied. One is by taxing industries, and the other is by taxing individuals. Another way a government deals with encouraging environmentally-friendly industries and individuals is through rewards.

Industries are some of the biggest contributors to pollution and poor waste management. However, the citizens and not the industries feel the negative impact of this. Taxing the industries for environmentally damaging decisions reduces pollution.

Environmental Tax levied on individuals is for consuming natural resources or behaviors like traffic congestion. While they may not be popular, they have proven to impact in the long run positively.

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Significance of Environmental Tax in India

The Indian government has taken critical steps to discourage environmentally damaging practices. For instance, the Forest Conservation Act of 1980 was passed to protect our forests. This act levies tax on entities that use forests for their business. This revenue is then diverted for afforestation efforts.

The Environmental Tax has proven to be an effective way to protect our environment. It is heartening to see this tax evolving, covering, and changing manufacturing and consumer behavior.

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FAQs on Environmental Tax

Q1: Does India levy Environmental Tax?

India does not levy Environmental Tax yet.

Q2: What is Environmental Tax?

Environmental Tax is levied on companies to discourage them from damaging the environment.

Q3: What is an initiative similar to India's Environmental Tax taken up?

An initiative similar to the Environmental Tax taken up by India is the Forest Conservation Act of 1980.

Q4: What are two ways that Environmental Tax is levied??

Environmental Tax can be levied in two ways – on companies and individuals.

Q5: What per cent of the Environmental Tax is the energy tax?

Energy tax forms 50% of the Environmental Tax revenue.