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We live in a world of wider perspectives but narrower viewpoints, greater opportunities for growth but reduced means to achieve global sustainability. With much greater exposure to global pollution, India’s capital being a prime example, developing countries are particularly susceptible to the adverse effects of climate change. These are evidenced by increased desertification, soil erosion, flooding, degraded air quality and carbon emissions. However, climate resilience and climate-just societies depend upon policy professionals taking steps to change tax policies to those that ameliorate and even reverse this destructive environmental trend. This does not appear to be happening.
Mukesh Butani
Managing Partner
BMR Legal
Such ambitions face the difficulties of achieving economies of scale and a lack of environmentally friendly industrial capacity in developing nations of the Global South. Environmental challenges faced by low-income countries can be addressed or alleviated by advanced and more developed emerging market economies taking effective action. The exemplary achievement of the Ad Hoc Committee to Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation was a prime example of how this can be brought about.
An overall view of the situation presupposes agreement on the major obstacle to such advances, domestic resource mobilisation. This means prioritising goals and removing difficulties when designing and implementing global tax systems. While the environmental problems facing many developing countries are severe, their tax systems have other profound difficulties to overcome.
These revolve around industrial capacity constraints. Small island economies and agriculture-dependant economies in Europe and South America are particularly challenged. The debate around this dilemma resurfaced during recently concluded Ad-Hoc Committee meetings. A wider and more realistic approach to their use of environmental taxes is the only way the difficulties of such societies can be developed. The result of the dialogue at the upcoming UN Committee of Tax Experts meeting should be aimed not only at mirroring the importance of tax sustainability in higher-income economies but also at resolving the practical problems of developing countries in achieving such stability. The discussions should be more focussed.
Pranoy Goswami
Associate
BMR Legal
In an initiative similar to the Tax Inspectors Without Borders OECD proposal, UN member nations should align efforts under the Framework Convention on Climate Change to achieve carbon neutrality and sustainability. The democratisation of the framework convention will be seen only when it headlines organisational partnerships in its next five-year cycle. India’s experience following the 2015 Paris Accord will shape its response to the many solutions that may be proposed.
However, the critical difference in the approaches of developed and developing jurisdictions when drafting handbooks, circulars and legislation on environmental taxes is the basic concern about tax administration, as recently pointed out by India’s Finance Minister. India, on the verge of becoming the third-largest economy in the world by the time the centenary of its independence arrives, has seen the administration encouraging and implementing many domestic initiatives, such as the Clean Environment Cess, or local levies. However, these pilots will only become permanent if policy stakeholders properly define the concept of tax sustainability. Ongoing discussions between tax administrations and businesses will guide India’s submissions in the forthcoming committee meetings.
As in laissez-faire economies, administrations in India and other developing countries should carry out Pareto efficiency analyses to maximise the net social benefits from external relations while balancing them against the associated marginal social costs. A specific policy for emissions taxes, for example, requires quarterly reviews and updates to tax rates. In addition to benefitting from geopolitical advantages during its stewardship of the next rounds of progress in environmental taxation, India will be presented with a unique opportunity to raise revenues for human rights on a large scale. This will put India at the forefront of the design and development of a framework that will incorporate the next generation of environmental taxes.
Mukesh Butani is the managing partner and Pranoy Goswami is an associate at BMR Legal.
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