State considers higher green taxes
April 7, 2006
By Ingrid Salgado
Cape Town - Wide-ranging tax reforms, such as higher taxes on coal-derived electricity and dirty transport fuels and new taxes on waste water discharge, have been suggested in an environmental fiscal reform policy paper released by the national treasury yesterday.
The proposals are, at this stage, just presented as options requiring further investigation.
The suggestions include taxes on products like batteries, tyres and fluorescent lights; raising licence fees for vehicles without catalytic converters; and providing incentives to businesses for using certain preferred disposal methods.
The paper proposes deeper investigation of environmentally-related electricity taxes to recoup the R1.4 billion surplus generated by municipalities that operate as electricity distributors. They are due to lose this revenue stream under the electricity distribution industry restructuring process that is under way.
The revenue could be recouped by either:
formalising and restructuring this tax on electricity distribution at a national level, and including the 130 large industrial users that consume more than 100 gigawatt hours of electricity a year. They are supplied directly by Eskom; or
imposing a fuel input tax on, for example, the use of coal to generate electricity. This would exclude energy forms such as solar or wind.
A more concrete proposal is that of a tax linked to waste water discharge levels, which is being developed by the department of water affairs and forestry. It proposes progressive tax rates for pollution loads exceeding certain water quality management targets.
The paper estimates that environmentally-related tax instruments already in place account for just less than 10 percent of total tax revenue. The single largest source of this revenue category is the general fuel levy, which amounts to R1.16 a litre of petrol, R1 a litre of diesel and 60c a litre of biodiesel.
The potential exists to improve the environmental outcomes of these tax instruments, the paper says.
For example, it proposes taxing lead replacement petrol at a higher rate than unleaded petrol "over time" to discourage its use.
It also notes that current vehicle excise duties tend to place a higher tax burden on luxury vehicles although these vehicle tend to use better technology to reduce emissions.
The paper recommends reforming "perverse" environmental incentives such as the deduction of certain expenses for income tax purposes that, in their current form, may encourage landowners to cultivate land that could be of high conservation value.
Although it does not recommend outright the scrapping of concessions on diesel fuel taxes for the agricultural, forestry and offshore mining sectors, it makes the point that their activities may be "to the detriment of wider environmental and conservation objectives".
The paper questions the continued VAT zero-rating of pesticides and fertilisers, which contribute to increased surface and groundwater pollution, but cautions that the matter needs to be further analysed due to "positive conservation outcomes" of these chemicals, like the intensification of agricultural production.
The zero-rating of illuminating paraffin, a contributor to fires in informal settlements, is also queried.
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