Need for Eco Tax in India

Synopsis: Eco Tax in India can be useful for sustaining public  Health financing as well as in mitigating effects of climate change.

Background

• India’s tax revenue decreased significantly during the Pandemic. It has resulted in widening the Fiscal deficit. For instance, the fiscal deficit for FY 2020-21 (revised estimates) is projected to be 9.5% of the GDP
• Also, according to WHO, 17.33% of the  Indian household’s expenditure on health was greater than 10% of their total expenditure or income. The percentage was higher in rural areas compared to urban areas.
• According to the Economic Survey (2019-20), Government should increase public spending from 1% to 2.5-3% of GDP on health. It is envisaged in the National Health Policy of 2017. This much spending can decrease out-of-pocket expenditure from 65% to 30% of overall healthcare expenses.
• However, sustained health financing in India remains a challenge. Along with this, India is shouldered with the responsibility of mitigating  climate change and preservation of the environment.
• In this context, an eco-tax (Environment tax) will help India to (i) Mobilise resources (ii) Reduce out of Pocket Expenditure on health by increasing public spending (iii) Mitigate climate change.

Benefits of implementing Eco Tax in India

The implementation of an environmental tax in India will have three broad benefits: fiscal, environmental and poverty reduction.

• First, revenues mobilised from Eco tax can be used for the provision of environmental public goods and addressing environmental health issues. Such as
  • To, finance basic public services.
  • To, reduce other distorting taxes such as fiscal dividend
  • Lastly, to finance research and the development of new technologies
• Second, it will help in eliminating existing subsidies and taxes that have a harmful impact on the environment.
• Third, it will help in restructuring existing taxes in an environmentally supportive manner.
• Fourth, may help in initiating new environmental taxes in the future.

How Eco tax can be implemented?

In India, eco taxes can target three main areas:

1. One, differential taxation on vehicles in the transport sector for fuel efficiency and GPS-based congestion charges.
2. Two, in the energy sector by taxing fuels which require for energy generation.
3. Three, waste generation and use of natural resources.

What are the Challenges in implementing Eco tax?

• Environmental regulations may have significant costs on the private sector. Such as slow productivity growth, high cost of compliance, resulting in the possible increase in the prices of goods and services.
• However, the European experience shows that most of the taxes also generate substantial revenue.
• Further, most countries’ experiences suggest only a negligible impact on the GDP that can be neglected.

What is the way forward?

1. One, the success of an eco-tax in India would depend on its planning and design. It should be credible, transparent and predictable.
2. Two, the eco tax rate should be equal to the marginal social cost. This cost arises from the negative externalities associated with the production, consumption, or disposal of goods and services.
3. Three, Green accounting. Need to evaluate  the damage to the environment based on scientific assessments. It includes, adverse impacts on the health of people, climate change, etc.

Source: The Hindu