Tax incentives for the environment (Part 2)

The Philippines has also adopted tax incentives for the environment along with other objectives, such as aiding the health and education sector, promotion of culture, sports and arts, as well as incentives for social welfare.

For instance, we have the Philippine Environmental Code, particularly Section 56, which provides tax incentives for the installation and the utilization of pollution control facilities. But how serious are we in promoting and implementing environmental protection through taxes?

Filipinos have the tendency to keep old belongings even after they outlive their usefulness and become a nuisance to the environment. We feel sentimental over our old stuff. This is also reflected in our tax structures. Our tax structure on vehicles does not look very friendly to the environment. It favors older vehicles with lower tax rates. Also, registration rates for older vehicles are also lower than for newer vehicles (which are arguably friendlier to the environment, in terms of lower emission rates).

In this light, the “carbon credits” model of incentivizing earth-friendly projects can be a useful tool to attract green projects while encouraging development. Companies in the Philippines can earn “carbon credits” by implementing energy efficient and renewable energy projects. These credits can be exchanged for cash in international markets at prevailing market prices.

So what now? Tax incentives may be received both by natural persons (for instance, a purchaser buying an environment friendly air-conditioning unit) or juridical persons (such as a corporation establishing a multi-million-peso project in the Philippines.) At the state level, we can encourage renewable energy companies to foster sustainable development in the country. The government can exempt them from some taxes for selling earth-friendly products which in turn would reach the public. At the local level, we must encourage businesses that would not degrade our natural resources. We might want to exempt businesses from some taxes for using paper bags instead of plastics. Through tax incentives, we can encourage both individuals and corporations to think about environment protection. It can bring huge changes with regard to environment protection when you talk about millions or billions of investments.

Unless we institutionalize environment protection through long-term policies, we will see environmental degradation happen in front of us. Addressing the problem will involve the joint effort of several departments and agencies: Transportation and Communications, Tourism, Trade and Industry, and the Bureau of Internal Revenue, among others.

Can the benefits of these tax incentives offset the costs and the government revenue forgone? My answer is yes. Whether tax credit is for individuals or for corporations, it is a win-win situation for us.

At the end of the day, politics will still call the shots. It will be a political decision to implement tax policies to protect the environment. I am one of those looking forward for the new administration to push for this change.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a tax partner of Endriga, Manangu & Associates, CPAs and Management Consultants. Feedback at map@globelines.com.ph. For previous articles, please visit <map.org.ph>.