Environment Tax and Its Benefits

Environment Tax:

• An Environmental tax (Green Tax) is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via social cost arising from the negative externalities associated with the production, consumption and disposal of goods and services.
• The Covid-19 pandemic has also forced countries all over the world to rethink about the climate change and the need for preservation of the environment and initiating new environmental taxes.

Why do we need such Policies?

1. Reduction in Pollution level: Enforcing the tax on the private sector factories producing unnecessary pollutants would help in reduction of pollution level and will help in maintaining one of the pillars of our budget i.e. health and well-being.
2. Fiscal Benefit: Environmental tax reforms can generate revenues to finance basic public services, when raising revenue through other sources proves to be difficult or burdensome.
3. Poverty Reduction: If some part of the revenue generated is spent on health and wellness sector by the government it would reduce the amount spent by an individual overall thus reducing the inequality and overall reduction in Poverty.
4. Reduce distorting taxes: It can also help to reduce other distorting taxes such as fiscal dividend.
5. Research and Development: Environmental tax reforms help internalize the externalities, and the said revenue can finance research and the development of new technologies.

Challenges Associated with the Environmental Tax:

1. It is assumed that the Environmental regulations may have significant costs on the private sector in the form of slow productivity growth and high cost of compliance, resulting in the possible increase in the prices of goods and services as there is no evidence on green taxes with sustainable development goals leading to no growth.

1. The Environmental Tax should be credible, transparent and predictable.
2. Imposing an additional tax on several years’ old Public transport such as Cars, buses, three-wheelers and etc. will transfer the burden on the public which is already suffering income losses post pandemic crisis.
3. The Green tax will contribute in increasing the overall transportation cost which could surge the overall inflation.
   

Environment Protection Provisions in India

• Environment and Wildlife protection is under Concurrent List of the Constitution.
• With the help of Fundamental right (Part III), Directive Principles of State Policy (Part IV) and Fundamental Duties (IV A), most of the environmental regulations and enactments have been exercised.
• Article 48A of the DPSP states that the State shall endeavour to protect and improve the environment and to safeguard the forests and wildlife of the country.

Acts and Legislation

• Wildlife Protection Act, 1972-Fundamentally to protect the wildlife of the country.
• The Water (Prevention and Control of Pollution) Act of 1974 -Amendment in 1988. To prevent and control water pollution.
• Forest Conservation Act of 1980- First Forest Act was formulated in 1927. Deliberated by The Forest Advisory Committee under MoEF&CC.
• Environment Protection Act, 1986- After the Bhopal Gas tragedy, GoI enacted it as Umbrella legislation. It is formulated under article 253 of the constitution.
• The Energy Conservation Act of 2001- Legislation intended to promote efficient use of energy in India.

Current Status of Environmental Tax in India

• Green Tax is essential to limit global warming and meet emission-reduction targets made in Paris Agreement by India. As a share of GDP, India has the 4th lowest environmentally related tax revenue among 34 OECD and 5 partner economies according to OECD’s Energy Related Taxes Report.
• According to WHO finding in India 17.33% of population spends more than 10% of their income on health, which is highest in South-Asia whereas the Government spends 2.5% of GDP on health and India is home to 6 of the World’s 10 most polluted cities both contributing to increase in inequality and overall poverty. Eco Tax can act as an alternative source of health financing and help in decreasing the out-of-pocket expenditure from current 65% to 30% thus reducing overall poverty.
• Recently, the Centre has announced to impose a "green tax" on older vehicles in a move to disincentive the use of polluting vehicles and to curb pollution in the country, effective from 1^st April, 2021. The Ministry of Road Transport and Highways will levy a green tax on transport vehicles older than eight years at the time of renewal of fitness certificate at the rate of 10% to 25% of road tax.

What can be done?

1. Prioritization of hybrid and electric vehicles over carbon fuel based vehicles could be done.
2. Right implementation of Scrappage Policy in the line of green tax. Some sections of the society may not be in a position to retire old vehicles because of high capital cost. So appropriate % of incentives should be provided.
3. There is also a need to merge environmental taxes in the Goods and Service Tax framework.
4. Funds should be used by the States to set up State-of-the-art facilities for emission monitoring.

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