SUSTAINABLE economic development can be achieved by sustainable environment development. The government launched an environmental policy in 2005 to control environmental degradation with sustained level of economic growth.

The main objective of the National Environmental Policy (NEP) is to protect, conserve and restore Pakistan’s environment in order to improve the quality of life of the citizens through sustainable development.

The OECD has elaborated that an environmental tax is based on physical unit (or a proxy of it) that has a proven specific negative impact on the environment. Four subsets of environmental taxes are distinguished: energy taxes, transport taxes, pollution taxes and resources taxes.

These taxes are economic instruments to address environmental problems as they internalise environmental costs and provide economic incentives for people and businesses to promote ecologically sustainable activities. The same is the psychologically of carbon taxes.

Tax revenue of environmental taxes can be used for Pakistan’s environmental preservation or other non-environmental welfare. The revenue from environmental taxes can be a viable substitute to cut taxes such as income tax, cooperate tax and social insurance preminum.

Environmental taxes are a way for governments to influence behaviour by levying taxes against practices or products which harm the environment. This can include greenhouse gas emitters like gas online, products that contain toxic chemicals like batteries, and industrial agricultural pesticides, and disposable items like plastic bags.

Governments at national, regional and local levels need to raise revenue from a variety of sources of expenditure. The details of taxation are guided by two principles: who will benefit, and who can pay. The disadvantage of tax is that it can make the price of products expensive.

Official figures reveal that out of Pakistan’s 1.7 million taxpayers about 1.6 million pay about Rs21,000 each as income tax every year.

All these people fall into the lowest tax bracket where their annual income tax is less than Rs500,000. Only 7,680 taxpayers earned enough to pay income tax. Rules and international donors want the country to widen its tax base before asking the rest of the world for more aid and help.

In 2010, 70 per cent of all revenues from environmentally-related taxes were raised on various energy products, especially on motor vehicle fuels. On the top of that, 27 per cent of the total revenue was raised via taxes on motor vehicles and various transport activities.

The ‘double-dividend hypothesis’ is very useful for Pakistan that increased taxes on polluting activities can provide two kinds of benefits. The first dividend is an improvement in the environment and the second dividend is an improvement in economic efficiency from the use of environmental tax revenues to reduce other taxes such as income taxes that distort labour supply.

A broader use of environmental taxation or emission trading systems would be one of the most efficient and effective ways of promoting green growth. The OECD has been analysing and promoting the use of marked-based instruments for many years for the last 15 years or so. Environmental taxes have had a clear positive impact on the environment to the extent that such taxes have been applied.

Administration costs or barriers may necessitate the taxation of proxies to environmentally harmful activities. Care should be taken to ensure that it does not impair environmental outcomes. The revenue generated can be used to help with fiscal consolidation or reduce other tax rates.

Environmental taxes give rise to distributional or competitiveness concerns, but these are usually best addressed through policy tools. Providing information, transparency, and certainty is critical to public acceptance and to the effectiveness of environmental taxation.

Finally, taxes may need to be combined with other instruments to obtain the most efficient and effective environmental policy packages. However, care should be taken to assess the impact of overlapping instruments.

UROOSA ATTIQ University of Punjab Lahore

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