How is taxation shaping the green agenda?



Society

How is taxation shaping the green agenda?


Concept of carbon tax with industrial plant. PHOTO FILE | NMG

Summary

  • Kenya and other states in the East African Community have over the years adopted tax policy initiatives to control the use of certain products that affect the environment.
  • The use of electric vehicles mitigates the impact of excise taxes on the cost of the car and fuel.

The United Nations COP26 2021 summit recently concluded in Glasgow, Scotland, as climate change becomes a key agenda around the world. The conference provided an opportunity for governments to follow how they responded to the multiple challenges presented by climate emergency efforts with two areas of focus, including reducing carbon emissions and changing resource use. .

Kenya and other states in the East African Community have over the years adopted tax policy initiatives to control the use of certain products that affect the environment. These taxes range from excise or environmental taxes to corporate income tax. It is anticipated that the prioritization of environmental measures linked to taxation will be a major lever for change in the consumption or use of certain products.

Some of the initiatives and policy measures that the Kenyan government has put in place regarding the green tax fall under several thematic areas.

Motor vehicles

Traditionally, petroleum products are subject to excise duties due to the external impacts they have on users and the environment. The importation of used motor vehicles into Kenya is capped at eight years.

Any vehicle over eight years old is prohibited from importing into Kenya. In addition, as of 2016, motor vehicles of tariffs 8702, 8703 and 8704 had excise duty imposed at 20 percent and currently 1,500 cc vehicles pay excise duty at 25 percent, but those above pay excise duty at 35 percent.

On a positive front, 100% electric cars benefit from a reduced excise duty rate of 10% to encourage clean energy and reduce carbon emissions.

Plastics

In November 2019, Kenya banned the import or manufacture of plastic shopping bags. Before that, these attracted excise duties of 120 shillings per kilogram. During the same period, Kenya introduced a reduced corporate tax rate of 15% for five years for companies operating plastics recycling plants. This was aimed at attracting companies to the plastic recycling sector in order to accelerate environmental conservation.

This was followed by the introduction of a 10% excise tax on plastic packaging materials and resins from July 1, 2021. This caused a public outcry as plastic packaging and resins are mainly used as inputs.

Business and consumer reactions to government green tax initiatives

It is a fact that some of the government’s green tax initiatives are also imposed to collect more revenue and businesses understand and appreciate the government’s mandate to collect revenue for the provision of services to citizens. However, there are some areas of concern regarding the legislation and the implementation of the initiatives.

For example, since the reduction of the excise duty rate (10%) on electric vehicles, several consumers have considered the use of electric vehicles. This is also explained by the fact that white petroleum products are subject to excise duties, which also affects fuel prices.

The use of electric vehicles mitigates the impact of excise taxes on the cost of the car and fuel.

On the other hand, the introduction of a 10 percent excise tax on plastic packaging materials and resins has since caused public outcry as they are mainly used as inputs. This would technically imply that the excise duties borne on these inputs would not be offset by the excise duties paid on the finished products subject to excise duty.

In addition, some of the finished products from these inputs are not subject to excise duty. It should be noted that these expenses of non-refundable excise duties by manufacturers on inputs are absorbed into the ex-works price of the finished goods, making them costly.

The introduction of a lower corporate tax rate for companies operating recycling plants in 2019 and then the repeal of the law the following year was a blow to companies that had invested heavily in these. companies to strengthen the circular economy initiative. Circular economy models involve companies to reduce, reuse or repair, remanufacture and recycle plastic products after use by consumers.

Businesses affected by the introduction and repeal of a lower corporate tax rate as well as the 10% excise tax on plastic packaging materials and resins have denounced the failure of policymakers policies to give them sufficient time to prepare for changes in the law.

It was called the failure of businesses to forecast taxes for the foreseeable future and to plan or forecast the medium to long term feasibility of their businesses.

Procedure for stakeholders

The government should strive to encourage all companies that operate to strengthen a green economy and / or mitigate climate change. The bloc has, for example, established the EU Green Deal investment plan, which includes a strategy for plastics, the EU circular economy action plan as well as financial support at levels national and regional.

When fiscal measures / policies are put in place, sufficient time should be allowed for the taxpayers concerned to put in place systems for implementing the measures. When the 10 percent excise tax was introduced on plastic packaging materials and resins, the KRA iTax system was not set up in time to allow licensing of affected manufacturers prior to collection. and accounting for rights.

The business community that invests in affected companies should set up circular business models to convince the government that companies will not have the effects of climate change on the environment. In addition, there should be green tax strategies within companies to protect them from negative effects.

Therefore, as long as climate change continues to be a threat to governments, they will use all means, including fiscal policies, to counter the consequences.

The opinions expressed here are not necessarily those of EY


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