Environment tax a step in the right direction

Levies discourage activities that harm the ecosystem. FILE PHOTO | NMG 

By PRISCA MUSIBI

Summary

• Levies discourage behaviours and activities that harm the ecosystem.

Looking at the state of environmental protection in the world today, one gets reminded of how true the words of an Indian Cree prophecy have become.

“When the last tree has been cut down, the last river has been poisoned and, the last fish has been caught, only then will we find out that money cannot be eaten.”

These words could never be more relevant in the wake of a global outcry against the abuse of Mother Nature as a result of increasing industrialisation, urbanisation and illegal logging.

Despite the convenience and economic growth that has resulted from it, industrialisation has come with its fair share of problems — key among them air pollution, which is associated with global warming.

Industrialisation’s main contribution to environmental degradation has been through increased release into the atmosphere of greenhouse gases that absorb and retain sunlight and solar radiation bouncing off the earth’s surface that would otherwise have escaped into space.

The result is increased temperature on planet Earth, with each New Year recording higher record temperatures than the previous one.

Faced with changing weather patterns, failing rains, floods, drying rivers and rising ocean levels, many countries are starting to appreciate the detrimental impact of human activities on the environment.

These countries have sought to rein in these actions by encouraging innovation of environment friendly alternatives. One of the tools that governments have found useful is environmental taxes and tax breaks.

READ: Changes to law extend public forests' harvesting licences

The Organisation for Economic Co-operation and Development (OECD) describes environmental taxes as “Any compulsory, unrequited payment to general government levied on tax bases deemed to be of particular environmental relevance.”

Environmental taxes ensure that the polluter takes into account the economic cost of a polluting or environmentally harmful substance or activity before undertaking it, thus illustrating the “polluter pays principle”.

Environmental taxes seek to either deter behaviour that is harmful to the environment by imposing taxes on such activities or to encourage activities that affect the environment positively by providing incentives to those partaking in such activities.

There are many types of environmental taxes that have been introduced in response to the startling statistics on the impact of environmental degradation. Examples include: water pollution tax, batteries tax, logging tax, tyres tax, toxic waste levy, tax on plastic bags, aircraft noise tax, vehicle tax, just to mention but a few.

One of the more interesting environmental taxes is the ‘chopsticks tax’ China imposed on wooden chopsticks in 2006 in order to protect their forests.

Before the tax, reports estimated that a mind-boggling 25 million trees were felled annually to manufacture approximately 45 billion pairs of wooden chopsticks that are used and disposed of each year!

One may ponder, where is Kenya in all this? It is important to note that Kenya has made some strides in this regard.

One of the ways Kenya applied the principles of environmental taxation was by gradually increasing the excise duty payable on polythene bags to deter the use of polythene bags which had become an environmental hazard, before eventually banning their use altogether on August 2, 2017.

Another move was the exemption from VAT of sealed tanks made of plastic used to produce biogas as a measure to promote production of green energy and alternative energy sources.

In 2016, Kenya made an even greater stride towards curbing environmental degradation by passing the Climate Change Act (CCA) and the Forest Conservation Management Act (FCMA).

The CCA which took effect on the 27 March 2016, is important for the development, management, implementation and regulation of mechanisms to enhance climate change resilience for the sustainable development of Kenya’s environment.

The Act gives the Cabinet secretary power to grant incentives to those who promote activities that mitigate the adverse effects of climate change.
In the same spirit the FCMA has the primary objective of giving effect to Article 69 of the Constitution which contains the State’s obligation to increase Kenya’s forest cover to at least 10 per cent of the land mass.

While the FMCA is yet to come into force, when it does, it will give the Cabinet secretary power to provide tax and other fiscal incentives to increase investments in forest land use and forest resource utilisation.

These incentives may be in the form of customs and excise waivers in respect of imported capital goods or tax rebates to forestry industries and other establishments investing in plants, equipment and machinery for improved resource utilisation and for using other energy resources as substitutes for hydrocarbons.

Others are exemption from payment of all or part of the land rates and such other charges levied in respect of the land on which a private forest is established as well as income and other tax deductions to landowners in exchange for the establishment of forest conservation easements.

Prisca Musibi, Tax and Regulatory Services Advisor, at KPMG Advisory Services Limited.