BÁO cáo KINH tế môi TRƯỜNG

LOTUS UNIVERSITY
KHOA KHOA HỌC VÀ CÔNG NGHỆ
TOPIC:
TAX ENVIRONMENT
Supervisor : Dr Hoa Pham Thi
Student Name: 1. My Linh Nguyen
Thi
2. Phuong Lien Hoang
3. Thi Lien Le
4. Hong Lien Truong Thi
5. Ky Vien Nguyen Huu
HO CHI MINH CITY, 22 RD NOVEMBER 2012
LOTUS UNIVERSITY
KHOA KHOA HỌC VÀ CÔNG NGHỆ
Đề tài:
TAX ENVIRONMENT
TP. HCM, THÁNG 11 NĂM 2012
OVERVIWER
Tax is to impose a financial charge or other levy upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state
such that failure to pay is punishable by law. Taxes are also imposed by
many administrative divisions. Taxes consist of direct tax or indirect tax,
and may be paid in money or as its labour equivalent. A tax is a pecuniary
burden laid upon individuals or property owners to support the
government,a payment exacted by legislative authority. A tax is not a
voluntary payment or donation, but an enforced contribution, exacted
pursuant to legislative authority and is any contribution imposed by
government.
Environmental challenges are increasing the pressure on
governments to find ways to reduce environmental damage while
minimising harm to economic growth. Governments have a range of

tools at their disposal, including regulations, information programmes,
innovation policies, environmental subsidies and environmental taxes.
Taxes in particular are a key part of this toolkit.
Environmental taxes have many important advantages, such as
environmental effectiveness, economic efficiency, the ability to raise
public revenue, and transparency. Also, environmental taxes have been
successfully used to address a wide range of issues including waste
disposal, water pollution and air emissions. Regardless of the policy
area, the design of environmental taxes and political economy
considerations in their implementation are crucial determinants of their
overall success.
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TABLE OF CONTENTS
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LIST OF IMAGES
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LIST OF TABLE
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I. Why choose this topic?
High oil prices above $ 100 / barrel become a burden for consumers.
Oil still the main source of energy for transportation. Some countries,
including Britain, Egypt and Indonesia, has moved from the oil- exporting
countries become oil-importing countries in recent years. In some country
as viet nam, the number of buyers increases dramatically when gas prices
rise. Some economic experts have expressed concern about the increase in
gas prices will certainly affect inflation. So, the influence of the petroleum
tax is very important. Tax policy will change the oil economic activities.
- Taxes can directly address the failure of markets to take environmental
impacts into account by incorporating these impacts into prices.
- Environmental pricing through taxation leaves consumers and

businesses the flexibility to determine how best to reduce their
environmental “footprint”.
- This enables lowest-cost solutions, provides an incentive for innovation
and minimises the need for government to attempt to “pick winners”.
1. What’s the Environmental taxation?
Environmental taxation is a amount of state budget to regulate
activities that affect the environment, to create a source of revenue for the
state budget, to compensate for the social costs. Environmental taxes can be
divided into two categories: indirect taxes: based on the value of goods
cause environmental pollutionIn Vietnam, the Law on Environmental
Protection was passed by the National Assembly on 15/11/2010. The
purpose of the environmental costs to prevent discharge pollutants into the
environment that can be solved. Therefore, the environmental costs to be
achieved Change the behavior of polluters. increase the income to pay for
environmental improvements. According to the Law on Environmental
Protection, include 8 groups: Gasoline, oil, grease, lubricants; Coal; HCFC;
nylon bags; Herbicides; preservatives forest products; Disinfectants. My
report just mentioned the impact of the tax on the oil market.
2. Why use environmental taxes?
Without government intervention, there is no market incentive for
firms and households to take into account environmental damage, since its
impact is spread across many people and it has little or no direct cost to the
polluter. Therefore, protection of the environment generally requires
collective action, usually led by government.
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In the past, environmental policy was typically dominated by
“command-and-control” regulations. These approaches were generally
prescriptive and highly targeted – e.g., banning or limiting particular
substances or requiring certain industries to use specific technologies. Over
recent decades, interest has grown in using market-based instruments such

as taxes and tradable emission permits. There are a number of reasons for
the increasing use of environmental taxes.
 Taxes directly address the market failure by “pricing in” environmental
costs
Taxes directly address the market failure that causes markets to
ignore environmental impacts. A well-designed environmental tax
increases the price of a good or activity to reflect the cost of the
environmental harm that it imposes on others. The cost of the harm to
others – an “externality” – is thereby internalised into market prices. This
ensures that consumers and firms take these costs into account in their
decisions.
 Taxes leave consumers and businesses with flexibility to determine the
least-cost way to reduce the environmental damage
Most regulatory approaches involve the government specifying how
to reduce emissions or who should do the reduction. Similarly, subsidies
and incentives for environmentally preferable goods or practices involve
the government steering the economy in favour of certain
environmental solutions over others. Both approaches involve the
government trying to “pick winners” – directing the market in a
prescriptive way. This requires significant information about ever-
changing conditions and technologies, and carries significant risk of
making suboptimal choices. Regulations generally result in higher costs
than taxes, since they force particular types of abatement, even if cheaper
alternatives are available.
The higher cost of the polluting activity that results from the
environmental tax makes the activity less attractive to consumers and
businesses. In contrast to regulations or subsidies, however, a tax
leaves consumers and businesses full flexibility to decide how to change
their behaviour and reduce the harmful activity. This allows market forces
to determine the least-cost way to reduce environmental damage.

For example, many countries impose significant taxes on motor
fuels like petrol and diesel because their use contributes to global
warming and local air pollution. The resulting increase in the cost of
driving a vehicle is an incentive to reduce emissions that could be achieved
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in a number of ways, in both the short-term and the long-term:
- Drive a smaller or otherwise more fuel-efficient vehicle.
- Drive a vehicle that uses a lower-emission power source, such as a hybrid-
electric vehicle.
- Drive less, perhaps by greater use of low- or no-emission alternatives like
public transit, cycling, walking, living closer to the place of work, or
otherwise changing habits to reduce the need to travel.
The environmental tax provides a greater range of abatement
options than instruments such as a regulation requiring a minimum fuel
efficiency level for vehicles or a subsidy that privileges electric vehicles,
which target only some solutions. Of course, if regulations are tough
enough and strictly enforced, they can have significant effects. However,
this achievement may be bought at the expense of unnecessarily high costs.
The flexibility of response associated with environmental taxes also
provides other benefits:
- Ongoing incentive to abate. A target-based or technology-based
regulation provides no incentive to abate once the target or technology
standard is met. By contrast, environmental taxes provide a continuous
incentive to abate at all levels of emissions, even after significant
abatement has already occurred.
- Improves competitiveness of low-emission alternatives. Environmental
taxes increase demand for low-emission alternatives, like public transit
and cycling in the case of taxes on automotive fuel. This results in
economies of scale that help to make such alternatives more viable,
without a need for direct subsidies.

- Strong incentive to innovate. Taxes increase the cost to a polluter of
generating pollution, providing incentives for firms to develop new
innovations and to adopt existing ones. For example, in the example above,
the increased demand for more fuel-efficient and alternatively powered
vehicles induced by fossil fuel taxes provides an important incentive for
automakers to develop such vehicles and for consumers to adopt them.
Under regulation-based approaches these incentives disappear once firms
have complied with the regulated standard. Enhanced innovation
lowers the cost to society of addressing environmental challenges in
the long run.
Environmental taxes also have other important features:
- Transparency. Well-designed taxes are highly transparent in terms of their
coverage and costs. It is generally clear what is taxed, which polluters are
exempt, and what the cost to polluters will be per unit of pollution
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generated. By contrast, the impact of regulations on different firms is
typically more difficult to discern, and preferential policies for particular
industries or constituencies can be harder to identify.
- Cost certainty vs. environmental certainty. Environmental taxes increase
the cost of particular products and activities in a fairly direct and
generally predictable way. This makes it easier to judge the first order
financial impact on consumers and firms. It is somewhat more difficult,
however, to predict how they will react to such price changes, and thus
to determine the quantum of the environmental impact. By contrast, with
regulatory approaches such as technology prescriptions, emissions
standards and renewable portfolio standards, the first order impact on
emissions may be easier to ascertain, but there tends to be less clarity
about financial impacts. Second-order effects, however, increase the
complexity of determining longer-term results in both cases, reducing the
dichotomy.

3. How to design environmental taxes?
Environmental tax bases should be targeted to the pollutant or
polluting behaviour, with few (if any) exceptions.
The scope of an environmental tax should ideally be as broad as the
scope of the environmental damage.
The tax rate should be commensurate with the environmental
damage.
The tax must be credible and its rate predictable in order to
motivate environmental improvements.
Environmental tax revenues can assist fiscal consolidation or help to
reduce other taxes.
Distributional impacts can, and generally should, be addressed
through other policy instruments.
Competitiveness concerns need to be carefully assessed;
coordination and transitional relief can be effective responses.
Clear communication is critical to public acceptance of
environmental taxation.
Environmental taxes may need to be combined with other policy
instruments to address certain issues.
II. Petrolimex Co.Lmt
1. At a glance
Fiscal regime In Vietnam, the Petroleum Law, its guiding Decree and
Circulars, as well as other tax regulations, covers the fiscal regime
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applicable to organizations and individuals (referred to as contractors)
conducting exploration and exploitation of crude oil, condensate
(collectively referred to as crude oil) and natural gas in Vietnam.
Table :
Bonuses
Defined in Production sharing contract (PSC) for

each contract
PSC Based on production volume
Corporate income tax (CIT) 32% — 50%
Resource tax
• Crude oil: 7% — 29%
• Natural gas: 1% — 10%
Investment incentives
• CIT rate of 32%
• Rate of recoverable expenditure is up to
70%
Export duties Crude oil: 10%
Tax of transfer of capital in oil
and gas contract
25%
2. Fiscal regime
Foreign petroleum companies are permitted to participate in and
operate, the exploration, development and production of petroleum
resources in Vietnam by entering into a PSC with the Vietnam Oil and Gas
Group (Petrovietnam).
The PSC shall be in accordance with the model contract issued by
the Vietnamese Government.
a, Product sharing
Product sharing for crude oil is based on the profit oil that is
computed by reducing the resource tax and cost petroleum from the actual
crude oil output. The same principle is applicable to natural gas.
b, Bonus and commission
A bonus or commission is a lump-sum payment made by foreign
parties to PSC to the Government (Petrovietnam) after declaration of the
first commercial discovery and after the first commercial production date.
In addition, the foreign parties to PSC shall also pay Petrovietnam a data

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fee and training fee.
c, Resource tax
Crude oil and natural gas are subject to resource tax.
The payable resource tax on crude oil or natural gas equals the
average taxable output of crude oil or natural gas per day in the tax period
multiplied (x) by the tax rate and multiplied (x) by the number of days of
exploitation of crude oil or natural gas in the tax period.
Table : The tax rates applicable to crude oil
Table : The tax rates applicable to natural gas
d, CIT
Petroleum companies are taxed at the rate of 32% — 50% on their
taxable income according to the new Corporate Income Tax Law which
came into effect from 1 January 2009. The specific rate shall be determined
by the prime minister for each PSC. The amount of CIT payable shall be
computed by multiplying the rate of tax with the taxable income. Net
operating tax losses are allowed to be carried forward for five years to
offset against future taxable income. Carryback losses are not allowed.The
taxable income is defined as revenue earned from exploration and
exploitation of oil and gas in the tax period as reduced by deductible
expenses. Other income such as royalties and interest are added to the
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taxable income. Revenue earned from exploration and exploitation of oil
and gas is the total value of crude oil and gas that is actually sold under
arm’s length contract in the tax period; otherwise, the taxable price shall be
determined on the basis of the average price in the international market.
Deductible expenses include:
- Expenses actually incurred in relation to activities of exploration and
exploitation of crude oil, gas but shall not exceed expenses that are
determined as revenue earned from sale of crude oil, gas multiply by rate

of recoverable expenses that is agreed in the oil and gas contract. Under
the 2000 Law on Oils and Gas, the standard recovery rate is 50%. If the
rate of recoverable expenses is not mentioned in the oil and gas contract,
the deemed rate of 35% will be used;
- Expenses supported by legal evidence documents.
Non-deductible expenses include:
- Expenses that exceed the contractual rate of recoverable expenses;
- Expenses that are not allowed as recoverable in the oil and gas contract;
- Expenses that are not allowed under the prevailing regulations on CIT.
The following incentives are available for encouraged projects:
- CIT rate of 32%;
- Recoverable expenses rate up to 70%.
The encouraged projects are the projects where petroleum operations
are conducted in deepwater and remote offshore areas, in areas where
geographical and geological conditions are difficult and other areas in
accordance with the list of blocks decided by the prime minister; and the
coal gas projects.
Accelerated depreciation: Accelerated depreciation under the
straight-line method is permitted if a petroleum company is operating with
high economic efficiency. The depreciation rate could be as high as two
times the limits set by the Ministry of Finance.
3. Capital transfer tax (CTT)
The gain from transfer of participating interest in the oil and contract
is subject to a CTT rate of 25%. The payable CTT equals taxable income
multiplied by the tax rate.
The taxable income is determined as transfer price less purchase
price of the transferred capital less transfer expenses.
• Scientific and technological development fund (R&D fund)
Petroleum companies are allowed to appropriate up to 10% of the
annual taxable income prior to assessing CIT in order to establish an R&D

fund. This fund is reflected in the annual CIT return. A report on its
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utilization is required to be furnished to the tax authorities along with the
annual CIT return. At least 70% of such funds should be utilized within five
years, failing which it shall attract the normal rate of CIT on the unused
balance together with interest on the CIT.
Expenses funded from the R&D fund shall not be deductible for CIT
purposes.
4. Withholding taxes
Foreign contractors that provide services to a petroleum company
operating in Vietnam are liable to pay foreign contractor tax (FCT) which
comprises value-added tax (VAT) and CIT.
Table : The applicable tax rates
Note: VAT is calculated at the rate of 10%.
5. Indirect taxes
a, Export duties
Exported crude oil and gas shall be subject to export duties. The
payable export duties equal quantity of exported crude oil and natural gas
multiplied (x) by dutiable price and multiplied (x) by export duty ratio. The
quantity of exported crude oil and natural gas is the quantity of crude oil
and natural gas that is actually exported. The dutiable price is the selling
price of crude oil and natural gas under arm’s length contract. Export duty
ratio equals [100% — ratio of resource tax temporarily calculated in the
tax period] multiply by export duty rates of crude oil and natural gas. The
ratio of resource tax temporarily calculated in the tax period equals
[estimated payable resource tax by crude oil and natural gas divided by
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estimated output of crude oil and natural gas] multiplied by From 1 January
2011, the export duty rate of crude oil is 10%.
b, Import duties

The following goods imported and used for oil and gas activities will
be exempt from import duties:
- Machinery, equipment and transportation means necessary for oil and gas
activities and certified by the Ministry for Science and Technology;
- Materials necessary for oil and gas activities and not available
domestically;
- Medical equipment and medicine used in oil rigs and floating projects and
certified by the Ministry of Health Care;
- Office equipment imported and used for oil and gas activities.
c, VAT
VAT, at the rate of 5% or 10%, shall be imposed on all goods and
services used for business or consumption. However, the following
imported goods that are not available domestically shall be exempt from
VAT
- Machinery, equipment and material imported for scientific research and
technological development;
- Machinery, equipment, parts, transport means and material imported for
exploration and development of oil and gas wells;
- Oil rigs and ships imported to form fixed assets or leased from abroad and
imported for business activities and for re-lease.
Exported crude oil and other unprocessed natural resources are
exempt from VAT.
III. Problem, Impact and Solution
1. Problem
According to the Price Management Department Nguyen Tien Thoa,
the adjustment towards the consumer has helped gas prices would have to
increase more than 1400, now only about 650 times increased on
08/28/2012.
Consumers still expect the larger share, as taxes, charges currently
petrol prices to team up nearly 40%. Things fake, losses or true of

businesses also causes more urgent and unclear how gains and losses, since
the right to increase prices, many gas stations every 10-day appointment
"power" or "out of gas" .
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The first question is the leadership of the Ministry of Finance as well
as many industry experts explained that the in 3 major tax levied on the
current petrol (VAT, excise and import duties), the first two types of non-
jurisdiction adjusted directly by the Ministry and is also being collected
according to international rules. Meanwhile, the import duty at 12%, well
adjusted after more than a year remained at 0%.
"Thus, the State has also shared with consumers as difficult. If in
normal conditions, petrol import tax to be collected in the benchmark,
20%", the a leadership ministry said.
According to the General Statistics Office, the total transport of
people and services - goods increased about 10% in the first eight months
of 2012 (according to the General Statistics Office). Meanwhile, according
to the General Department of Customs, imported petroleum eight months
reached 56 million tonnes, equivalent to nearly $ 6.33 billion, down 12.3
per cent and 7 per cent compared with the same period last year. Been
shown to be caused by the import business cautiously in the context of
fluctuating world prices, while retail sales which can not be adjusted.
Ex:
@.A petroleum production company the road margins MNPB = 80 - 40Q;
pollution marginal damage curve MEC = 4Q.
1.Draw on the same graph
2. Taxable output (Q) optimization.
3. Polluters have ownership, contaminated asked how much
compensation to reduce harm to themselves?
4. Social net benefits after declining production and compensation?
Ours’ Hint:

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1.
1)
MNPB= 80 – 4Q
MEC= 4Q
MNPB=0 => 80 – 4Q =0
Q= 20
Q= 0 => MNPB = 80
MNPB= MEC => 80 – 4Q = 4Q
80= 8Q => Q= 10
2)
MNPB = MEC => 80 – 4Q = 4Q
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80 = 8Q => Q= 10
Tax = t x Q
Q= 10 => t = 4 x 10 = 40
3)
OEE* =( 40 x 10) : 2= 200
4)
EE*HD – EE*H = EHD = (10 x 80) : 2= 200
@ Gas firm marginal cost curve decrease pollution MAC = 20 - 2W and
the marginal pollution damage MEC = 2W.
1. Draw two lines on the same graph.
2. Optimal z * taxable and tax revenue.
Hint
1)
MAC = 20 – 2W
MEC= 2W
MAC =0 => 20 – 2W =0
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20 = 2W => W= 10
MEC = 0 => 2W =0 => W = 0
MEC and MAC intersect => 20 – 2W = 2W =0 =>0 = 20 – 4W => W
=5
2)
MAC =MEC => 20 – 2W = 2W => 4W = 20 => W= 5
t= z x W => z* = 2 x 5 = 10
Past environmental tax plans have sometimes been greeted with
public suspicion that the tax is more a “revenue grab” than a plan to
achieve environmental outcomes. Business groups whose profits might
be adversely affected by higher taxes may lobby hard against such
taxes, stressing the potential losses to consumers and the competitiveness
of the economy.
- Lack of knowledge about the overall scheme;
- Citizens were highly sceptical about governments using the funds to
reduce other taxes and instead felt that ecological tax reform was a guise to
generally increase taxes;
- The connection between the introduction (or augmentation) of
environmental taxes and reduction in other taxes was perceived as not
necessarily appropriate;
- According to taxpayers, the revenue should be used for environmental
purposes.
These findings suggest that open, transparent communication of all
elements of the plan – including the use of revenues, distributional and
competitiveness impacts, and how the government intends to deal with
them – are a key to successful implementation. The utilisation of
independent green tax reform commissions can help to ensure that the
policy prescriptions are perceived as credible and not as politically driven.
2. Impact
a, Economic impact

The impact of this tax change will not influence oil prices, as oil is
traded globally. High commodity prices increase the profitability of oil and
gas production. An increase in the tax burden through a higher rate of
supplementary charge will reduce the post-tax profits of companies
producing oil and gas, though Government still expects that average post-
tax profits per barrel will be higher over the next five years than the last
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five. The measure may potentially affect the commercial viability of a
handful of marginal investments, but the Government does not expect a
significant impact on investment or production in the forecast period as a
consequence of this measure. The Government will consider with the
industry the case for introducing a new category of qualifying field for field
allowance to support continued investment.
b, Impact on individuals and households
There is no impact on households. As oil and gas are internationally-
traded commodities, upstream production companies are not able to pass
increased taxation onto consumers through higher pump/domestic gas
prices. Dividends from oil companies contribute to pension fund income.
The impact on pension fund income is not expected to be material because
the proportion of that income generated from UK upstream activities is
small.
c, Impact on businesses and third sector
There will be no adverse administrative impact on companies from
an increase in the rate of the supplementary charge.
3. Solution
Updating tax regimes: During 2011, many countries significantly
changed their tax regimes, which affected tax burdens for companies.
Changes influenced industry taxes, such as royalties and petroleum taxes,
and general taxes, such as income tax rates and other general fiscal terms.
Discovering new hydrocarbon reserves: New frontier countries in

which hydrocarbon reserves have just been discovered such as some
African nations, Cyprus and Israel (included in our 2012 guide) are
working towards designing their national legal and tax legislation for the
oil and gas industry.
Developing unconventional oil and gas: Governments are focused on
forcing development of unconventional oil and gas reserves.
Increasing shale gas development: Shale gas development increases
in North America and high scale development may be started in Europe.
Poland is working on its tax regime for shale gas.
Competing for Arctic reserves: Arctic countries are competing to
attract investments into offshore and onshore projects and may revise their
tax legislation. Russia, which has the largest potential Arctic oil and gas
reserves, is already in the process of elaborating a new attractive tax regime
for Arctic offshore projects.
Managing high oil and gas costs: Governments are striving to
manage high oil and gas prices by maximizing efficient production of oil
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and gas. This strategy aims to reduce oil and gas costs in state budgets
while securing a fair return for the extraction of a nation's natural resources.
a, Environmental Tax Incentives
An alternative to taxing environmental “bads” is to provide tax
relief for environmental “goods”. The tax system can be used to
subsidise environmentally beneficial goods or actions by, for example,
VAT exemptions for energy-efficient appliances or favourable
depreciation rates for capital investments in renewable energy or
pollution abatement.
Like other subsidies, however, tax expenditures have a number of
important limitations: Since it is difficult to subsidise all the
environmentally beneficial alternatives to the harmful activity, tax
subsidies inevitably involve “picking winners”, which may prejudice other

good alternatives. For example, unlike a tax on road fuel, a subsidy for
low-emission vehicles does not provide any incentive for commuters to
consider alternative forms of transportation such as public transit or
cycling.
By reducing costs, tax subsidies may indirectly increase pollution.
For instance, unlike a tax on vehicle emissions or road fuel, a subsidy for
hybrid electric vehicles may encourage people to drive more.
- Subsidies are costly, and have to be paid for by other taxpayers,
reducing their real disposable incomes. Further, since it is difficult to
restrict the benefit of subsidies to those who required the subsidy to
induce them to undertake the environmentally preferred activity, a
significant portion of the cost typically relates to “free-riders” – those
who would have undertaken the activity even without a subsidy.
- The fiscal cost of tax subsidies tends to be less transparent than direct
spending, and they are often not subject to the same level of legislative
scrutiny as spending programmes.
b, Policy credibility and predictability
 The tax must be credible and its rate predictable in order to motivate
environmental improvements
Environmental policy, especially taxes, can affect pollution
abatement through both short-term and structural responses. In the short-
term, firms may reduce output and consumers may adopt less polluting
behaviours in response to price changes, including those induced by tax
changes. If the changes were quickly reversed, however, economic agents
could easily resume former behaviours without much cost or effort.
Structural responses are more fundamental changes with longer-term
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consequences, such as changes to decisions relating to capital
investment, innovation programmes or purchases of housing and
consumer durables. These changes depend on households

‟
, firms
‟
and
investors
‟
long-term views and expectations, especially about prices. For
an environmental tax to induce structural changes in abatement and
innovation efforts, the policy must be credible – the public must be
convinced that the government has
„
done its homework
‟
and is
committed to implementing the tax. Planning, dialogue with
stakeholders and clear communication are important tools for building
such credibility.
Figure : Taxes on NO
x
emissions to air
c, Us
i
n
g t
h
e
r
eve
nu
e ge

n
e
r
ated
 Environmental tax revenues can assist fiscal consolidation or help to reduce
other taxes
Most environmentally related taxes do not raise significant
revenues for governments. Most of the revenue from environmental bases
is drawn from only a few taxes and charges, including CO
2

(energy) taxes
and taxes on driving (fuel, vehicles and tolls).
Environmentally related taxes account for approximately 5% of
total tax revenues Moreover, the intent of these taxes is to shrink the tax
base, in contrast to most other taxes which attempt to raise revenues at
least cost to the base. On the other hand, the scale of the reduction in
greenhouse gas emissions needed if atmospheric concentrations are to be
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limited to, say, 450 ppm CO
2
e, is so great that (once sufficient
international co-operation is in place) tax rates on fossil fuels in
particular may have to be much higher than at present, and thus generate
significantly more tax revenues for at least the foreseeable future.
Figure : Revenues from environmentally related taxes in per cent of
GDP
Generally, revenue from environmental taxes should be treated as
general government revenue and used to maintain spending in other areas,
reduce debt, or reduce taxes. While in theory some of the revenues could

be used to compensate those most affected by the environmental damage,
in practice this may not be possible:
- Measuring the impact of environmental damage from a range of pollutants
on individuals is extremely difficult;
- The environment itself is a public good with the impacts of
environmental damage spread widely, suggesting that revenues could be
deployed widely to offset increased costs for hospitals, adaptation to
environmental damage, etc; and
- Many environmental issues also have significant intergenerational aspects.
It is sometimes suggested that “earmarking” revenues from an
environmental tax – e.g. to fund public spending on environmental
innovation or subsidies – can help to increase the political acceptability of
the tax. In practice, however, the level of revenues from a particular tax is
unlikely to track the appropriate level of spending in a particular policy
area, resulting in under-funding or over-funding or continual adjustments
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in the tax rate. As a matter of fiscal planning, therefore, it is normally more
prudent for governments to manage their individual revenue sources and
spending needs independently. This does not, however, prevent a new tax
from being linked in a general sense with a roughly offsetting “use” of the
new revenues earned.
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CO
N
CL
US
IO
NS
Environmental taxation has a significant role to play in addressing
environmental challenges. Taxes can be extremely effective when they are

properly designed, are levied as close to the environmentally damaging
pollutant or activity as possible, and are set at an adequate rate.
Administration costs or barriers may necessitate the taxation of proxies
to environmentally harmful activities, but care should be taken to ensure
this does not impair environmental outcomes. The revenues generated
can be used to help with fiscal consolidation or reduce other tax rates.
Environmental taxes give rise to distributional or competitiveness
concerns, but these are usually best addressed through other policies
tools. Providing information, transparency, and certainty is critical to
public acceptance and to the effectiveness of environmental taxation.
Finally, taxes may need to be combined with other instruments to obtain
the most efficient and effective environmental policy package, but care
should be taken to assess the impact of overlapping instruments.
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