Environmental and Social Criteria for Fiscal Reform
– What’s a Good Enough Place To Start?

In July this year, the much awaited and debated Goods and Services Tax (GST) was rolled out in India. Every sector and stakeholder, whether or not directly involved in the design or rolling out of GST has definitely been assessing and attempting to understand what it would mean for his/her business or sector or the economy. Currently, there is a buzz and much is being written out about the new tax regime and the basis of taxation on various goods and services, central and state GSTs, different slabs and exemptions. As things have unfolded, one aspect has become clear - the GST seems to have missed the bus with respect to integrating environmental and social gains that a tax reform has the potential to set in motion.

But first, let us enumerate some of the environmental and social imperatives for India’s economy to build a genuinely equitable, just, inclusive and greener society and what therefore a future friendly tax regime should address.

Jobs in large numbers. This would require promoting production systems and services that have high job to capital ratios. These are typically small enterprises and self-employment opportunities through skilling and market support.

Livelihood resilience especially for the rural and urban poor and those most vulnerable to climate impacts and social discrimination. This will require a focus on local economy resilience and growth. It will need to address small and marginal farmers, those dependent on forest based economies, traditional artisans, regeneration and scientific management of natural resources, greener practices in agriculture, fisheries livestock and related sectors. It will also need a proliferation of new and diverse livelihood options with climate change mitigation and poverty alleviation co-benefits.

Resource efficiency in production and manufacturing in primary, secondary and tertiary sectors such as construction, agriculture, transportation, tourism, water, energy and sanitation services. This requires promoting production systems that reduce virgin resource use and ensure that resources are used efficiently and remain in the production cycle for long and are reused with increasing value per cycle.

Reduced environmental impact and low carbon practices in both production and consumption. This will require the promotion of such production systems and services that reduce waste generation, are non-polluting, energy saving and use renewables. This also means incentives and support for consumption practices that reduce energy intensive goods and services, recycle and re-use by-products and wastes from other production and consumption cycles, share goods and services and contribute towards a cleaner, less wasteful India.

The above are not new ideas. These are the basic tenets of a Green Economy and are all essential characteristics of the Government of India’s policies on ZED (Zero Defect – Zero Effect), Make in India, Greening India, Smart cities, Swachh Bharat, Solar Mission, Skilling India, SFURTI etc.

Logically, a fiscal regime should ‘promote’ and ‘incentivise’ the above desired conditions, and ‘disincentivise’ and tax those that are the opposite. The basis for taxation should therefore include ecological footprints of goods and services – those with smaller footprints being taxed low; and handprints of local economy, small enterprises and job creation – larger handprints being taxed low.

Current critical assessment of the GST and its immediate ecological and social sector impacts are not positive. This is indicated in higher taxes for resource and carbon efficient fly-ash and stabilised compressed earth bricks for construction, water efficient millets, packed and branded organic manure, recycled glass and many other such ‘social and environmental goods and services’ than their counterparts of energy and virgin soil guzzling fired bricks, water intensive wheat and rice, fossil intensive chemical fertilizers etc.

The reasons for this short-sightedness are many, but one big gap currently is the lack of quantification of ecological footprints and social handprints of goods and services. This is a critical requirement in order that the true cost of production and consumption can be integrated into pricing and GDP. This is necessary in order that decision-makers and policymakers have the ready tools by which they can tax the bad and reward the good and not vice versa. This is also necessary so that independent critique is able to hold up the demand for an inclusive, fair and green economy with logic and evidence.

However, this as we know is not easy and is work in progress, not just in India but across the world. We know that ‘Perfect is the enemy of Good’. Till such time that truly contextual set of tools and methodologies are available, we and the tax policy makers need to put to use what is available and there are plenty of national and international tools and methodologies that may be adapted for use. Policies should be based on the fact that:

“Recycling is good, reduction in virgin resource use is good, lower emissions in production processes are good, renewable energy is good, reuse is good, shared services are good, businesses that create jobs with lower capital are good”. All these are better than those that don’t. And if a lower tax bracket enables a proliferation of these goods and services, then that is a good enough place to start. ■

Zeenat Niazi
zniazi@devalt.org