Are environmental taxes addressing our health concerns?
Welcome to July, the month where rains are expected to support increasing yields of farm produce and rising water level in our dams. Coupled with this blessing are fears of cholera and other environmental health challenges which we experienced about the same time last year as a result of some negative attitudes towards the environment.
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The environment is affected by production and consumption patterns. Pollution can be regarded as an externality and, hence, not only an explicit cost of producing goods and services, but as one that is also borne by others in the form of a damaged environment (e.g. offensive odours and changes to the climate).
Tackling the underlining causes
To address environmental problems, behavioural changes are needed. Some of these changes will involve substantial economic costs that affect labour, product and capital markets. It is, therefore, not surprising that economic instruments for pollution control and natural resource management are increasingly becoming an important part of environmental policies of leading associations and countries such as the European Union (EU), Organisation for Economic Co-operation and Development (OECD) countries, China and the United States of America. The range of economic instruments these associations and countries employ include, environmental taxes, fees and charges, tradable permits, deposit-refund systems and subsidies1. Ghana’s story is not materially different even though it is in the infant stage.
To lay the foundation in discussing environmental tax within the Ghanaian context, it is instructive to ask:
• Whether the government of Ghana has a precise and concise definition for environmental tax? and
• How has the government of Ghana addressed environmental issues using taxes?
To address environmental issues the government has taken several steps including issuing a discussion document on “Ghana Goes for Green Growth”. However, the focus of this paper is understanding what environmental tax is and whether or not the objectives for its introduction are being achieved in this country. There is no publicly available information suggesting that the government of Ghana has a precise definition for environmental taxes. Therefore, we will proceed by looking at some definitions including that of the UK’s which is considered precise enough and then share some views on what environmental tax should be in the case of Ghana.
The UK Treasury considers a tax having the following properties as an environmental tax:
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• the tax is explicitly linked to the government’s environmental objectives;
• the primary objective of the tax is to encourage environmentally positive behaviour changes; and
• the tax is structured in relation to environmental objectives, for example: the more polluting the behaviour, the greater the tax levied.
It follows that environmental taxes should primarily not be aimed at generating tax revenues but rather on delivering environmental benefits. So what should be an appropriate working definition of environmental taxes in the context of Ghana if we are to determine whether the desired effect is being achieved or not?
The Ghana case
In the 2013 budget, the government proposed a more comprehensive environmental tax regime to help address the issues of climate change, sanitation and solid-waste management in the country. This clearly indicates that Ghana has some form of environmental tax but government recognises the need to review the regime.
Environmental taxes (a.k.a. green or pollution taxes) are imposts meant to provide economic incentives for people and businesses to promote ecologically sustainable activities. It is not only a way for governments to change environmentally harmful behaviours, but it can also be used as a way to raise tax revenues which is needed considering Ghana’s current status as a lower middle income economy.
Applying the UK Treasury principles to Ghana, the most direct environmental taxes in place is the excise tax on plastic and plastic products. This tax was effectively introduced in 2011 at 20 per cent, and then reduced to 15 per cent and now 10 per cent.
The OECD considers a tax whose tax base is a physical unit (or a proxy of it) that has a proven specific negative impact on the environment to be an environmental tax. It categorises environmental taxes into energy taxes, transport taxes, pollution taxes and resource taxes. Using this expanded definition, the following may be considered as environmental taxes in Ghana:
• Excise duty; Energy levy; Hydrocarbon exploration levy; Road levy; Cross subsidy levy;
• Tema Oil Refinery Debt Recovery;
• Unified Petroleum Price Fund (UPPF) levy; and
• Special Petroleum Tax.
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Other charges in the petroleum price build up, such as the various margins, are not considered as environmental taxes. Other taxes and penalty variations on imported motor vehicles collected by the Customs Division of the Ghana Revenue Authority have not been considered.
Considering the number of environmental-related taxes imposed by the government, natural questions that follow are whether these taxes are addressing the health concerns of the country. Are these taxes enough to change behaviours? Or are they generating sufficient revenues that can be used to offset any damages to the environment and even be utilised for other economic needs?
In the next series, we will attempt to provide some answers to the above questions. Please feel free to contact me by sending an email to [email protected] .To ensure obtaining a quick response in case I am unavailable, please copy in Abeku Gyan-Quansah ([email protected]).