Carbon tax proposal

Sartaj Aziz, Advisor to the Prime Minister on Foreign Affairs, while speaking at a seminar on Climate Change and International Security, stated that Pakistan was fully committed to preventing any negative fallout of climate change; and later proposed a carbon tax at the rate of one cent per unit of fuel. This is not a unique proposal as several countries levy such a tax including Canada, Chile, Ireland and, South Africa; nor is it inappropriate for the Advisor as opposed to the Finance Minister to propose such a tax for two reasons. First, because the Advisor is a two-time former Finance Minister and has the educational background and the relevant experience to propose measures relating to the economy; and (ii) climate change is increasingly being seen as having foreign policy dimensions given that environmental degradation has a major negative impact on individual countries, their neighbours and by extension the global economy.
Not only would Aziz's suggestion, if implemented, appease the international community, it would also be a reflection of Pakistani government's commitment to dealing with environmental degradation through the imposition of a penalty on a product that is considered a major polluter. We also hope that the government would adopt other measures targeted towards the use of cleaner fuels and discourage the use of pollutants. However, to achieve these objectives, collections under the carbon tax will have to be parked in a dedicated fund with the objective of ensuring that it is used specifically for environmental purposes and not for budgetary support. It is unfortunate that successive governments have resorted to using dedicated funds for budgetary support and there is therefore a legitimate concern that the carbon tax, if levied, may also be used for funding current expenditure - an occurrence which without doubt would defeat its very purpose. In other words, a carbon tax must not be implemented as a revenue generating source but as a dedicated fund.
Pakistani governments, including the incumbent, rely excessively on taxes collected from the fuel sector - a reliance that reflects the continued poor performance of the Federal Board of Revenue (FBR) as well as its parent Ministry of Finance to proactively reform the tax structure that remains inequitable, unfair and anomalous. Dar recently admitted that reliance on fuel as a revenue source is more than 25 percent of total revenue collected in any given year and the reason for such a heavy reliance is premised on ease of collection rather than any legitimate economic rationale. Dar's recent claims that tax to Gross Domestic Product (GDP) ratio has improved can be sourced to redefining components of non-tax revenue as tax revenue and crediting taxes collected by withholding agents as FBR revenue. In this situation to levy yet another tax on fuel even at the low rate of one cent per unit of fuel would no doubt have repercussions on the standard of living of the general public as well as on productivity as the cost of inputs would rise.
It is noteworthy that the Sharif administration's focus on development projects, particularly road building, has had a negative environmental impact as mitigating measures in terms of replacing trees that have been cut down have not been pursued in all instances. It is also relevant to note that logging continues unabated in some provinces, particularly Khyber Pakhtunkhwa, resulting in compounding of the negative impact of natural disasters. The past decade alone shows that the impact of floods has been exacerbated by the failure of successive governments to undertake damage control with respect to environmental degradation. And while some areas of Pakistan are on a fault line, yet the damage done by earthquakes is also much greater because of our failure to take appropriate mitigating measures to preserve our environment. One would, therefore, hope that the Sharif administration would review Environmental Impact Assessments of each project carefully and take the suggested mitigating measures in a timely fashion.