Environmental taxes – adapting to changing conditions
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
15 September 2020
ICAS calls for the considered creation of environmental taxes to correct eco-behaviours and improve the environment.
Adapting to changing conditions
Various factors have brought about the need to consider environmental taxes to discourage unwanted eco-behaviours and benefit the environment worldwide. ICAS considers that a number of recommendations are valid:
- The aim of any environmental tax should be to drive behavioural change and deliver benefits for the environment
- Environmental taxes should not be designed primarily to raise revenues
- Develop a framework for assessing the case for new environmental taxes
- Engage with the public about proposed new environmental taxes and the rationale behind them
Slavish revenue-raising
Where environmental taxes are concerned, it is more important to ensure the outcomes primarily benefit the environment rather than raise revenues for the sake of it. The main intention should be to change personal, business and industrial behaviours.
The ICAS definition of ‘environmental taxes’ is:
- taxes with the primary objective of encouraging environmentally positive behaviour change, and
- structured in relation to environmental objectives, for example: the more polluting the behaviour, the greater the tax levied.
Framework
When assessing new taxes proposals which are geared to improving the environment, the following questions are relevant:
- Why is a new tax needed?
- What is its primary objective?
- Is there a better way of achieving the objective?
- What are the key features of an effective tax?
- Can the tax be collected without imposing disproportionate administrative burdens?
- Could there be unintended adverse consequences? If so, how could these be mitigated?
This should help to ensure that taxes which simply raise revenue without having a positive impact on environmental improvement are deemed not to be fulfilling their objectives. However, a balance is needed. If environmental taxes achieve their aim of changing behaviour and yet fail to produce significant revenues in the long term, problems may emerge. For example, fuel duty currently produces revenues – but these will reduce as people switch to electric cars (which currently benefit from some incentives).
ICAS recommends:
- Designing new environmental taxes effectively and reducing environmentally damaging behaviour
- Avoiding undue complexity and disproportionate administrative burdens
- Encouraging public support for new environmental taxes
Public engagement will be vital to the success of the scheme. Clear statements on rationale and transparency around the design and objectives should be conveyed during public consultation.
Contribute to the debate
ICAS members are invited to contribute to this debate – please give your views on the recommendations in ‘Future of Taxation in the UK’ by emailing tax@icas.com or login to the CA Connect forum, an area exclusive to members, where thoughts may be shared and discussed with fellow members. There are also opportunities to join ICAS tax committees to discuss these recommendations and many other tax policy and practical matters – email tax@icas.com to find out more about being a committee member.