A research conducted by the Federal Board of Revenue has strongly defended imposition of carbon tax in Pakistan despite the fact the advance countries have enforced this tax as a "revenue neutral measure." A research-based analysis of FBR Member Mumtaz Haider Rizvi on carbon tax issued on Wednesday revealed that the developing countries like Australia and New Zealand are reluctant to impose carbon tax due to political reasons.
The paper has been specified in the FBR quarterly review (January-March 2009). In most of the developed countries carbon tax has been enforced as a "revenue neutral tax." In the developing countries like Pakistan where environmental issues have been overshadowed by other grave issues of economy, the carbon tax as an additional tax may not be treated as an important taxation measure, analysis added.
Interestingly, the government had replaced Petroleum Development Levy (PDL) on petroleum products with carbon surcharge and its collection has been targeted at Rs 122 billion in 2009-10). On the other hand, the research paper of the revenue collection agency has talked about levying carbon tax as revenue neutral measure.
The proposals to implement carbon tax by Oceana region (Australia & New Zealand) is still pending due to political constraints. The main motives behind this poor "will-to-introduce" the carbon tax can be traced back to the vested interests of countries like USA, which, being highly energy "inefficient", expect far more benefits in Carbon- Trading than in carbon-taxation.
The report said that if the carbon tax on the emissions particularly related to the petroleum products and utilities are not adjusted and recycled with other sources of revenues, then it would result in an increase of price which would not only burden the general public but create political issues for the democratic governments.
The relevant lessons from the experiences of developed countries can be drawn, where carbon tax has been used in place of fuel tax. Pakistan has replaced carbon tax in place of Petroleum Development Levy (PDL). It will not only be revenue-neutral but would also provide the available cushion to recycle the revenue. The major part of the revenue can be shifted to the environment sector through Public Sector Development Program (PSDP).
By replacing PDL with carbon tax following benefits and advantages could be earned: It would enhance the tax to GDP ratio. Secondly, its implementation would help to seek international investment and funding regarding environmental issues. Unlike PDL, it will become a part of NFC. This will help allocate reasonable amount for tackling the environmental issues at local levels.
It may, in future, be extended to other producers and importers of fossil fuels emitting GHGs, to make it equitable and also to discourage the polluters. It has been recognised through the Kyoto Protocol that the developed countries are the major polluters, so the major responsibility also rests on them to control the GHGs particularly the major emitter in the form of carbon dioxide.
But, only 10 to 12 of the 37 developed countries that are signatory to the Kyoto Protocol have been able to implement the carbon tax. Even in USA and Canada it has been implemented only partially, in the form of a local tax.
In the case of European countries, which are energy efficient, the trend is more towards carbon taxation. Majority of the examples pertaining to the introduction of carbon tax are therefore drawn from Europe. Some European and other countries have replaced fuel tax with carbon tax by shifting the tax incidence without going for any additional revenues from this source.
For the developing countries, carbon tax is more viable than carbon emission trading because presently they do not have any binding emissions reduction targets. So, levying it in a revenue neutral form would help to combat the emissions of GHGs for their own future concern and also in the case of extension of environment protocol to developing countries, Rizvi added.
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