Business

Thursday September 24, 2009

Move towards eco-friendly initiatives to rejuvenate economies

By CHAS ROY-CHOWDHURY


THE environment is a hot topic. Countries as diverse as the United States, South Korea, Japan and China have announced billion-dollar green initiatives to rejuvenate sputtering economies.

Not to be outdone, the United Nations has launched its Global Green New Deal and Green Economy Initiative which aims to create a sustainable, equitable and eco-friendly business model to replace the previous consumption-oriented paradigm that depleted resources and bankrupted businesses and nations.

An essential element of these green initiatives is taxation, which aims to embed the green culture while providing an extra source of revenue for cash-starved governments.

Green tax structures around the world are diverse and can take both the carrot and the stick approach.

Punitive taxes include the world’s first carbon tax introduced by Finland in 1990 to reduce emissions and energy consumption.

China taxes the disposal of household and commercial waste and waste water.

Germany taxes transport emissions, where taxes are calculated directly on the level of emissions.

Elsewhere, the US’ carrots for increasing investment in renewable energy sources include enacting tax credits for the expansion of wind, solar, biomass and other renewable energy technologies.

China’s incentives include offering corporate income tax allowances for companies that reduce their water consumption.

It makes sense that Malaysia is warming up to green taxes as an alternative option to raise revenues.

Economists have repeatedly warned Malaysia to diversify its tax base which is currently heavily dependent on petroleum tax and corporate and personal taxes.

Since oil and gas reserves are dwindling, petroleum taxes will decline in future and it will take time to migrate Malaysia to the proposed high-income economic model.

Although goods and services tax has been bandied about as one solution to increase taxes, green taxes too are being studied.

There are successful precedents.

In Denmark, 5.9% of tax revenues are made up of environmental taxes, by far the highest proportion in the European Union and arguably the world’s highest, notes Eurostat.

Britain too has successfully implemented a range of environmental taxes, including the Climate Change Levy, a tax on the end-use of “taxable commodities” (electricity, gas and coal) by commercial customers, and the Landfill Tax, which taxes people and organisations when they discard waste in landfill sites.

The challenge for Malaysia lies in timing.

Like other nations, Malaysia is mired in recession that might not abate until 2010.

Given that corporate and personal earnings have fallen, can Malaysians stomach new green taxes that would further erode income?

It’s highly unlikely.

Therefore, the solution might lie not in punitive taxes, but in incentives to encourage people and companies to adopt green technologies and behaviour.

After all, governments should use tax policy as an instrument of positive change.

Thus far, the Malaysian government is sending out preliminary signals that incentives will be the way to go to promote the national green agenda.

Energy, Green Technology and Water Minister Datuk Peter Chin announced last month that the government is working on a proposal to give additional tax and tariff incentives to companies for green initiatives.

Nevertheless, lessons from other regimes would be useful to ensure success. ACCA hopes that the recommendations enumerated in Green taxation in a recession, a recent ACCA position paper will be useful in developing and implementing green taxes.

We believe that the design and implementation of green taxation policies must be carried out very carefully.

Do consult widely with electorate/business before designing and implementing taxes so they understand what is happening and why, and to avoid any backlash.

Collaboration between government and policy experts and support from businesses is essential in making any national agenda a success, and this is especially so for a subject as complex as the green agenda, which affects numerous stakeholders.

To enlist stakeholder support, it is vital to raise awareness of the need for green taxation by explaining the benefits and making sure that green taxes are explicit, transparent and understandable.

Once taxes have been implemented, measure and analyse the results so that it can be ascertained if goals are being met.

It must also be kept in mind that green taxes do not exist in a vacuum.

Pollution is borderless and has a global impact – see how our carbon emissions melt Antarctic ice-caps?

Thus, one country’s green tax regime could be undermined if its neighbours are heedless of environmental concerns.

Therefore, global synchronisation in green taxation policy is a necessity.

If environmental taxation lacks international co-ordination, it will not impact global pollution levels, as companies will simply relocate and move the pollution problem with them.

If measures are implemented unevenly, in one country and not another, it leads to a loss of international competitiveness.

As we move to a low-carbon economy, scrutiny of business’s environmental performance will only increase.

To be fair, business needs policies that are transparent, clear, credible and certain in order to achieve carbon reduction goals.

Budget 2010 will be an ideal platform for Malaysia to articulate these policies and preview the integrated tax regime that will be necessary for the wholehearted adoption of the National Green Technology Policy, and facilitate our migration into the mainstream of low-carbon economies.

·Chas Roy-Chowdhury is global head of taxation at ACCA.

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