Green Tax and its Effectuation in India

Abstract

The indirect tax system in India has undergone extensive reforms for more than two decades. It can induce appropriate environmental decisions by raising the relative costs of polluting inputs and outputs and thereby correcting the negative externalities of a polluting activity. To the extent that promotion of ‘environment’ is a public good, like all public goods, financing of this public good should also be from the general pool of taxes including the environmental taxes. The supply of all public goods including the environmental public good should be determined by reference to the principle of ‘marginal social cost of public funds’. Environmental challenges are increasing the pressure on governments to find ways to reduce environmental damage while minimising harm to economic growth. When tax is imposed on a polluting or environmentally harmful substance or activity, it introduces an economic cost that the polluter will take into account when making the decision on whether or not to carry on the activity or, how it is done or its extent.Environmentally related taxes as any compulsory, unrequited payment to general government levied on tax-bases deemed to be of particular environmental relevance. The relevant tax-bases include energy products, motor vehicles, waste, measured or estimated emissions, natural resources, etc. The aim and purpose of environmental taxes is to curb or reduce the extent and amount of the use or consumption of harmful substances or activities, or depletion of a resource. When the imposition of the tax is well targeted, it will add to the costs of the subject paying the tax. The adding of costs to a producer within one country or region, that is not imposed on producers outside that country or region, may of course impact on the competitiveness of the local producer. The result may be that a polluting activity is reduced in geographical areas where environmental standards are higher, and increased or taken over by competitors in places with laxer regulatory regimes.Green tax (or environmental tax) are taxes imposed on environmental pollutants or on goods whose repeated use contributes to pollution. It is a novel idea to enforce or introduce taxes on substances, which pollute the environment, the ultimate aim being the substantial reduction of pollution. In a country like India, green taxes shall have a deterrent effect, sensitizing the denizens about pollution control and management. This paper will discussed issue Whether the imposition of green taxes shall assist in the reduction of pollution.