An essay evaluating the following statement ;"Environment taxes are no more than devious attempts to increase tax revenues whilst making governments feel good about themselves"

University Degree Physical Sciences

International Taxation MF 456 F - -

CONTENT PAGE NO.

1.0 Environmental Taxation 2

2.0 The Government’s Role in Environmental Tax 5

3.0 Is Environmental Tax a Devious Attempt to 6

increase Tax Revenue?

4.0 Conclusion 12

5.0 Reference 13

6.0 Bibliography 15

An essay evaluating the following statement ;

“Environment taxes are no more than devious attempts to increase tax revenues whilst making governments feel good about themselves”

1.0 Environmental Tax

The world today is suffering with environmental issues, but it is impossible for individuals to make a different by them selves, thus bringing environmental tax into the picture. Environmental taxation What is it? “People often think of taxation and the environment as two entirely different worlds” (Smith, n.d.). Milne argues that the government can and do use tax policies to achieve environment goals thus bringing the two together.

It has been said that Environment Tax can be defined as a tax whose base is a physical unit that has a proven negative impact on the environment. (Robert, n.d.). It is further argued by Ribeiro, that environment taxes are particularly effective instruments for the internalization of the externalities, by incorporating the cost of environmental damages and repairs onto the goods and services. However some of these taxes are interlinked and in some cases taxes are set based on economic values of the damages done.

Common or current examples of environment tax would be taxes such as “Fossil fuel tax” which is widely practiced is the US, this tax is paid every time fuel is manufactured or bought, these taxes are imposed for a variety of reasons, but often justified for environmental reasons, various industrialized countries, particularly the OECD members, have imposed or proposed carbon taxes on various types fossil fuels.

These carbon taxes are domestic taxes and are not tariffs. The rate of tax can vary according to the amount of carbon residuals that are contained.

“Landfill tax” (paid every time rubbish is throne/dumped on the land). This was first introduced on October 1998, in UK. This was to encourage consumers and companies to produce less or no waste and recover value from waste product, For example recycling and reuse (Whittall,n.d.). Landfill tax was initially based on estimates of the environmental damage costs; however the tax itself has been raised to seek compliance with the European Union Landfill Directives.

And finally, “Aggregates Tax” which exists in the UK, is a tax on tonnes of aggregates rather than on the externalities itself. The choice of a tax per tonne of material proves the need for administrative simplicity. Aggregate taxes are normally targeted taxes and are basically on quarry operation to help save the earths biodiversity.

But such taxes are potentially inefficient in situations where the demand for the taxed product is inelastic, which mean that the tax will raise revenue but do little to reduce the tonnage of material used. If there is no effect on the tonnage then there will also be no effect on the externalities and therefore the environmental purpose of tax is lost. This is because, only by taxing the externalities directly e.g. noise, dust, visual intrusion, road vehicle emissions, is there an incentive for the industry to remove the tonnage from their environmental effects (EFTEC, 1999).

These taxes can be divided into two categories (1) Broad Based Tax and (2) Target Tax. Broad based taxes have an impact on everyone or a lot of people (e.g. fossil fuel tax) and the later impacts targeted areas only (e.g. land fill tax).

As to whether it pays to be an environment saint, Professor Steve Toms agrees, referring to a case where Milton Friedman once famously pointed one way to make a positive contribution to the share holders is by social and environmental responsibilities. Furthermore environment tax raises the country’s revenue, thus helping the government.

...

This is a preview of the whole essay

2.0 The Governments Role in Environmental Tax

“Over time, the Government will aim to reform the tax system in ways that will deliver a more dynamic economy and a cleaner environment: shifting taxes from ‘goods’ like employment, towards ‘bads’ such as pollution” (DETR, 1999 cited in Brian and David, 2000). The government has to raise funds in order to control destructives activities and protect the environment. So being the case, government implemented environment tax, for taxes can discourage things and at the same time they tend to make something public (Anon 2, March 2004)

Therefore government will increase and decrease environmental taxes in order to control situations. However, there have been arguments implying that the government is doing nothing more than changing the tax base, whilst making themselves ‘feel good’ It is hard to define ‘feel good’ for it is very subjective. It could either mean, they feel good about what has been done for the country or what they have achieved as an individual.

Nevertheless environmental tax itself is a very subjective issue for it is hard to audit environmental damages or for that matter account for pollutions, thus making it difficult to draw the line. As this essay unfolds, it would be considering if environmental tax is used by the government as a devious attempt to increase tax revenue.

3.0 Is Environmental Tax a Devious Attempt to Increase Tax Revenues ?

Two very strong bodies who are against governments with environmental taxes are the companies/enterprises and the Green party. Companies have become very anxious about the likely damage to business arising from the Kyoto environmental protection measures (Robert, n.d. ) for environmental taxes would be eating up their profits. This was revealed in a survey conducted amongst Financial Directors and Controllers by CIMA.

Companies being an easy target for the government feel that the corporate tax should cover all these issues. It is further argued that the environmental tax is on the product rather than the emission. For example, “impending aggregate tax (which is taxes on quarry operations) is a tax on tones of aggregates rather than on the externalities directly. The choice of a tax per tone of material reflects the need for administrative simplicity, as with the landfill tax” (Brian and David, 2000)

Moreover this tax is expected to affect 50% of the business, for by taxing the companies the government would be indirectly making it harder for international companies/MNCs to operate in the country hence the business is affected, resulting on a damage of the country’s economy. Where after environmental tax will also be driving away foreign investors from operating their business and will inevitably cause pressure on parties involved.

On the other hand Green Parties feel that the tax dollars are not improving the community. They feel that too often government only give “lip service” and little is done. Based on the environmental taxes introduced, they claim that the government has little interest in meeting the roots of the environmental problems. As discuss earlier, only externalities are taxed rather than the internalities.

It is also recommended that environmental taxes introduced are target based taxes, making the results transparent. For example, instead of setting one rate for all companies, the rate should depend on the amount of pollution or waste. (E.g. £2 for collecting rubbish beyond a specified limit – Paul, 2003)

This way companies are encourage to become more efficient in order to reduce waste and save cost, this will also increase recycling which has a lots of visible benefits.

“We need politicians writing new laws to prohibit special interest money in politics and to be sure those laws do what the people expect” (Anon 3, March 2004). It is argued that environment taxes collected are not being channeled back to the environment. And by doing so, people will be discourage from paying the tax for they are not able to see or feel its impact.

There are also many other doubts in the public minds as to where the environmental tax is channeled to. This is because, it is difficult to set taxes at a level which accurately reflects the real environment costs of economic activities (Anon 1, March 2004) for instants once the revenue is increased it becomes very volatile for how would the clean up be done. Would there be enough funds for the clean up and even if there is how would we know that there is enough funds.

Some may argue that this can be solved by hypothecation where revenues raised are spent directly on environmental activities (Anon 3, March 2004) but hypothecation doesn’t say if revenue matched the expenses, bringing us back to the same argument ‘how would we know if there is too little or too much’.

Thus individuals and companies are not encouraged, they may regard environment tax as a form of income generation for the government rather that a genuine environment tool. It is further believed that government introduce environmental tax only so that they can reduce other taxes on individuals and companies, making them happy, by doing so they would look good for they seem to be caring for the environment and at the same time they are able to provide a good budget for the country.

This would only make them a lot more popular in the citizen’s eye but would not be saving the environment itself for the damages done. Moreover, like it was discussed earlier, this could be one of the many times, when the government would feel good for what they have achieved as an individual.

Furthermore in countries with high rates of corruptions, for example Malaysia and Indonesia, the government would even pocket the extra revenues, i.e. use them for their own personal use, for example they would buy properties under their family member’s name or pay for a holiday trip abroad in cash.

Another discouraging factor of the environmental tax would be the fact that taxes are imposed on products where the demand on that products is inelastic, here although a significant amount of revenue is raise, there is not much reduction in the tonnage of material used ( Brian and David, 2000). Here it shows that the government taxes good/services which have inelastic demand, limited supply and limited alternatives, proving that they are after soft targets instead of the real bigger polluters.

This is believed to be because these real polluters are harder to define thus making it harder for the government to go after them and in cases where prices are inflexible due to lack of alternative products, ( for example petrol) cost would just be transferred to the final consumer without any environmental benefits (Anon 3, 2004)

Another reason government do not tax the bigger polluters could also be because they are the potential revenue, where by taxing them the government would be indirectly changing their behavior towards polluting the environment and over the years, leading them to paying less taxes in the long run.

This means lesser revenue in the years to come, however the government’s spending would still be the same, causing a deficit in the country’s budget. In order to avoid this, government would rather not spend money chasing the difficult targets, but merely attack the softer targets for steady revenue. In short they would only be taxing the consequences and not the cause itself.

“Furthermore if charges or taxes represent only a small portion of the outlays on a particular product or service, their effect may not be sufficient to alter behaviors” (Anon 1, March 2004) taxes may also appear to legitimize or condone environmental damages by those able to pay the price, and may therefore be seen as inferior to barring such activity outright.

This proves that government is doing nothing more than shifting or changing the tax base. “Research indicates that revenue from environmental taxes would lower other taxes and fund rebates and tax credits”.(Dean,n.d. ).

Though so far it seems like environmental tax is not a good thing there are however some evidences showing that environmental tax could also be a good thing. It has been argued that “as the implementation of an environmental tax in itself serves as a means to achieve a governmental policy, the revenue can be tough of as general revenue” (Anon 3, 2004)

This means that it is not wrong for the government to channel the revenue to other sources or uses as long as it benefits society, for example if environmental tax is used for education rather that to clean up pollution it still beneficial. “taxes can also be earmarked, as for instance if it is decided that a certain percentage of the revenue will be effected to a specified purpose for example when part of gasoline tax is earmarked to building or maintaining roads” (Jean, 2000)

There are other benefits that can be attained, in economic terms (greater efficiency by internalizing externalities and eliminating distortions), and in terms of employment (lower unemployment thanks to a lowering of labor taxes financed by new environmental taxes. (Jean, 2000) For example, environmental taxes have mixed objectives, to protect the environment and provide revenue. Though these are said to be the objectives, some tax experts view mixed objective with suspicion and are often opposed to the use of taxation for other than strictly fiscal purpose.

Moreover referring to the above definition to the environmental tax, which has been agreed by international experts and adopted by the Statistical Office of the European Communities (Eurostat) and Organization of Economic Co-operation and Development (OECD). The definition enables analysis to be based on the effects of taxes rather than the aims behind their introduction, i.e. the aim of a tax for raising government revenue rather that reducing environmental degradation does not prevent it from being defined as an environmental tax.

4.0 Conclusion

Based on the above, though there are many points supporting governments who implement environment taxes most of the points disagree to the matter, this is simply because for anything to work it has to be implement correctly, and for something to be implemented rightly decision or prediction made about the future has to be accurate.

For example if the government want to implement environmental taxes rightly they have to be able to give valid proofs of the amount of damages done and the amount needed to clean up these damages. But it is very hard accomplished this for amount of damages or clean ups and very subjective and it depends a lot on the surrounding situation.

Hence until a formula measuring environmental damages and the clean up cost is found, thus proving the effectiveness of environmental tax to the public or tax payers, the statement being evaluated can be supported. So it can be concluded that governments are using environmental tax as a devious attempt to increase revenue.

( Words 2450 )

5.0Reference

Anon 1, Objections to Environmental Taxes, Environmental taxes, Available World Wide Web: URL deh.gov.au/industry/corporate/taxes.html.

Anon 2, Shifting taxes away from Human Initiatives, About The Green Tax Shift, Available World Wide Web: URL progress .org/banneker/taxshift.html

Anon 3, Use of Tax Revenue and forms of Introductions, Available World Wide Web: URL env.go.jp/en/rep/etax/et2d.html

Barde J.P, 2000, Implementing Environmental Taxes in OECD Countries, Available World Wide Web: URL env.cebin.cz/akce /pruhonice_e.brade.html.

Bohringer C and Rutherford T.F, In Search of a Rationale for Differentiated Environmental Taxes, Available World Wide Web: URL http://debreu.colorado.edu/optimal_tax.pdf

Brian and David, Setting Environmental Taxes for Aircraft, A Case Study of the UK, Available World Wide Web: URL uea.ac.uk/env/cserge/publications/wp/gec/gec2000_26.pdf

Dean H, 2003, The political Opinion, Available World Wide Web: URL ifs.org.uk/consumer/environmental.shtml

Hoerner A and Erickson G.A, A Framework for Assessment, Environmental Tax Reforms in the States, Available World Wide Web: URL

Jean, 2000, Environmental tax, the Benefits Available World Wide Web: URL uwm.edu/rjjeger/bron.pdf

Morris D, 1995, Tax Pollution, Not Jobs, Available World Wide Web: URL ilsr.org/columns/1995/12Sep05.html

Robert W, March 2000, Energy tax will damage UK business, Available World WideWeb:URL cimablobal.com/main/news/presscentre/hotpress/release_archive.htm

Smith J.J, How to Optimize the Environmental Tax Shift, Available World Wide Web: URL progress.org/geonomy/jeffopti.htm

Whittall R.E, Landfill Tax in the United Kingdom, Available World Wide Web: URL ilsr.org/columns/1995/12Sep05.html

6.0 Bibliography

Anon 2 (2001) p1&2, Government revenues from environmental taxes [online] U.K. Available from:-

Accounts/downloads/Noted_on_environmental-taxation.pdf

(Accessed 2 Mar 2004)

Anon 3, n.d. p1&2, Why the Green Party? [online] Available from:-

(Accessed 3 Mar 2004)

Anon 1 (2002) p1 &2, Nonpoint Source Pollution Control Facilities Tax Credit [online] State of Oregon, Available from:-

(Accessed 4 Mar 2004)

Anon 4, n.d. p1&2, Environmental Taxes [online] Available from:-

(Accessed 4 Mar 2004)

Bohringer C., Rutherford T. (2002) p1-25. In search of a rationale for differentiated environmental taxes [online]. Available from:-

(Accessed 13 Mar 2004)

Eger R., Knudson D (2002) p1-27. The Urban environment: Taxation, Brown fields, and Property Valuation [online} University of Wisconsin-Milwaukee. Available from:-

(Accessed 26 Mar 2004)

Hadjiyiannis C., Hatzipanayotou P. (2003) p1-22. Pollution and Capital Tax Competition within a Regional Block [online] Available from:-

(Accessed 2 Mar 2004)

Morris D. (1995) p1-3. Tax Pollution, Not Jobs [online] Available from:-

(Accessed 7 Mar 2004)

Page T., Zhang O.(2002) p1-20. Non-Distortionary Properties of Environmental Taxes: extension of Sandmo’s Observation [online] Brown University. Available from:-

(Accessed 19 Mar 2004)