Tax and the environment (Part 1)

Al Gore’s visit to the Philippines to talk about climate change and the seriousness of the problem reinforces the importance of the environment and sustainable development. Who among you did not experience the searing heat (you will agree with me when I say that this is an understatement) this summer and the almost surreal typhoons and rains last year?

Al Gore emphasized that these are effects of climate change, and as he puts it, this is the “collision between our civilization and the earth.” While I was listening to Al Gore, I (being a disciple of the subject matter) came to the idea of writing this article to talk about institutionalizing environment protection through tax policies.

Walk along the streets of Metro Manila (I recommend that our leaders do this), and you will see that pollution is all over the place. I know that you have seen and experienced it yourself.

Addressing environmental problems is urgent and important if our leaders would like to improve the Filipino quality of life. Metro Manila is the face that other countries look at when they deal with our country. And look at Manila, one heavy rain and it collapses.

The Philippines has a lot at stake with regard to protecting our environment. It is rich in environmental resources.

We have tourist spots that can compete with those in other parts of the world. Go to Amanpulo and you will see paradise, or go to Sagada and you will see heaven, not to mention the spots not yet commercialized.

We have several mining sites, quarrying sites, plantations, etc. We have to do everything to protect them by encouraging environment friendly investments that would support sustainable development and environment protection (I hope I will not see styro and plastics in our natural tourist spots).

The growing concern over the environment provides impetus for more policies aimed at its protection.

The world has long realized that securing the environment is as important as maintaining peace and stability.

Who would ever forget what happened to the long-running insurgency in Aceh, Indonesia? The warring parties were wiped out by a giant tsunami. We have also learned of climate change and the possible hazard it can bring. Both rich and poor countries are affected.

The environment covers geologic resources; topographic resources; soil resources; water resources; plant life; animal life; climate; even the air; the sun; and the rain. So how is the Philippines protecting its environment given that, one, it has very rich natural resources and, two, there is a growing concern for its protection not only because of the benefits derived it but more so because of the hazards it can bring to mankind? Wow, I am becoming an environmentalist now. Anyway, let me wear my tax hat again.

The question that I am posing here is whether or not rewarding or punishing someone (whether natural or juridical) will get you the behavior you want. Reward in this case is in the form of tax incentives and punishment in the form of tax impositions or fees. Of course, that would be a simplistic question to the more complicated concepts, such as fiscal incentive system, investments, tax holidays.

From what general concept do these tax incentives originate? Fiscal incentives are measures used by the government for particular objectives. It may be for the purpose of attracting investors, or encouraging a particular advocacy, such as health or education. They may be in the form of tax incentives, such as tax exemptions or tax credits, or may be non-tax incentives such as simplification of customs procedure and permission to employ foreign nationals in key positions for foreign companies. One objective of tax incentives may be environmental protection.

In some countries, tax incentives are already being awarded with respect to investments in energy efficient and/or environment-friendly assets. In China, “credit against tax payable” is given for investments in environmental protection, energy and water conservation equipment and projects. In India, there is compensation from multilateral fund of the Montreal Protocol for adhering to the policies of the agreement; tax exemption for collecting and processing or treating of biodegradable waste water; deduction of profits derived from infrastructure related to water; deduction of profits derived from biotechnology in the computation of taxes.

In the United States, they give tax credit for environment-friendly vehicles; tax credit for energy-efficient homes and appliances; alcohol fuels credit; biodiesel fuel credit; low-sulphur diesel production credit; renewable electricity production credit; advanced nuclear power facility production credit; energy credit; qualifying advanced coal project credit; qualifying gasification project credit; carbon dioxide sequestration. Another good example is our very own neighbor, Malaysia, which awards accelerated depreciation of computer technology and environmental protection investments.

Why have these countries incorporated tax incentives for environmental protection? The answer is that they have realized the importance of mainstreaming environment protection. –Map Insights — By Anthony Alden S. Aguilar, Businessworld