By Elvis Oyare
While taxation has traditionally been regarded as a revenue-generating scheme in which a person contributes to the running of the state in exchange for the maintenance of order in the society as well as the provision of several services, increasingly, taxation has become an instrument which the state wields in the performance of its regulatory function over various industries within its borders. Through the imposition of ‘specialized taxes,’ states are able to perform the dual role of restricting or mitigating the performance of certain activities as well as being a creative way to perform their traditional aim of raising essential fiscal revenue. Several of these specialized taxes exist, however, of relevance to our present discussion is such type of tax referred to as Environmental taxes.
Pursuant to the OECD, Environmental taxes are those taxes whose tax base is a physical unit (or a proxy of it) that has been proven to have specific detrimental impacts on the environment.1 These types of taxes are diverse and include amongst others energy taxes, carbon taxes, fossil fuel taxes, pollution taxes, transport taxes, and resource taxes.2
Carbon taxes are a form of excise tax on the producers of raw fossil fuels, based on the relative carbon content of those fuels. These taxes discourage the use of fossil fuels that are carbon-intensive by making them more expensive. Energy taxes are taxes on energy products which include consumption of electricity, consumption of fuel, and emission of greenhouse gases. They are levied on the energy-producing source/ the installation plant. Fossil fuel taxes are downstream taxes applied to fossil products, such as diesel, gasoline, and vehicular natural gas, that are used for road transport. Transport taxes on the other hand are traditionally qualified as a tax that is related to the ownership and use of motor vehicles. Pollution tax is calculated based on the emission of different gases (i.e. NOx, SOx, CO2 ) or ozone-depleting substances and harm caused to water resources or land using different materials (chemicals, pesticides) or anything that dissolves in nature or reacts to it. A resource tax refers to a tax levied on the extraction of a natural resource.
Following an increase in emissions and environmental pollution as a result of certain industrial activities, a number of African countries have begun introducing environmental taxes to curb these activities into their fiscal regime. These countries, although the list is not exhaustive, include South Africa; Kenya; Ghana; Egypt amongst others.3
According to ATAF, based on a survey of 37 ATO countries, revenues from environmental taxes average 0.13% of gross domestic product. Whilst these are the lowest contributor to GDP, there is scope for these taxes to increase the tax take.
As the rest of the continent endeavors to catch up on the imposition of environmental taxes, their policymakers must conduct empirical studies in order to avoid any unintended environmental or fiscal consequences where they adopt a one-size-fits-all approach and just apply taxes seen to be applied in other countries. There are optimal alternatives and it is essential that tax administrations are cognizant of the taxation principles of neutrality; efficiency; certainty and simplicity; effectiveness as well as fairness when intending to introduce such taxes.4
1. ‘What Are Environmental Taxes? | Japan Center for a Sustainable Environment and Society (JACSES)’ http://jacses.org/en/paco/envtax.htm accessed 6 February 2022
3. Kombat AM and Wätzold F, ‘The Emergence of Environmental Taxes in Ghana—A Public Choice Analysis’ (2019) 29 Environmental Policy and Governance 46 https://onlinelibrary.wiley.com/doi/abs/10.1002/eet.1829 accessed 6 February 2022
4. OECD, ‘Fundamental Principles of Taxation’ accessed 6 February 2022