Studies conducted in developing economies such as those in the European Union have shown that shifting the tax burden from incomes and profits to environmentally harmful uses, of energy for example, can create more jobs and ensure a cleaner environment atthe same time.

The recent spotlight (and funding!) on environmental issues, mostly climate change, has brought about a lot of debate on policy required to address these issues. Almost every academician or researcher worth his salt (whatever may be his professional calling!) has a perspective on the matter. Economists are not far behind and have also offered their two cents on all matters "green." One idea that has been bandied around is the introduction of a 'green" tax.

Bangladesh is yet to introduce legislation that uses market forces to arrive at an environmentally and socially beneficial outcome. This isn't a new concept, and has been in extensive use in OECD countries where environmentally-related taxes as a whole made up an average of 5.6% of total tax receipts in 2005.

The basic tenet of this policy would be to make prices reflect the true costs of using scarce resources such as fossil fuels and their external effects on the environment and people's health. In other words, we would seek to "internalise" social costs that were previously "externalised."

The advantages of such taxes lie in their ability to raise revenues whilst safeguarding the environment. Studies conducted in developing economies such as those in the European Union have shown that shifting the tax burden from incomes and profits to environmentally harmful uses, of energy for example, can create more jobs and ensure a cleaner environment at the same time. The idea is to encourage the use of underused human resources and give overused natural resources a breather.

Green taxes can supplement the current tax structure, rising over time to provide an alternate tax base. As national activities take on a more sustainable nature, the revenue accruing from taxes would gradually fall, requiring higher rates of green taxation. In essence, taxpayers would pay for the use of common property resources (CPR).

This would reflect the actual cost of using the resource to the individual consumer rather than allowing him a free ride on others. Given the dominance of higher income groups over CPRs, this would ensure the progressive nature of the taxes.

Inspire of this, green taxes are seen to be regressive as they affect lower income groups more than their higher income counterparts. This effect is magnified since lower income groups rarely pay taxes on income or profits.

This apparent impasse can be overcome by using the revenue generated from such taxes to benefit low-income households in a progressive manner. The regressive nature of the tax can be further reduced by ensuring that it is applied to the "upper stream” of economic activity where it falls relatively more heavily on higher income groups.

For example, a tax on fossil fuels at source would reduce pollution and the use of resources in energy intensive activities like road transport. The tax would fall relatively more heavily on incomes derived from fossil fuels and high-end users (higher income groups) rather than on consumers (lower incomegroups).

Such taxes at source also reduce the need for a multitude of taxes at all levels, as they create a ripple effect that is seen throughout the economy.

Another thorny issue that arises before the actual introduction of such taxes is with regard to public support. Political governments by nature are reluctant to make any move that makes them unpopular with their voters.

This goes back to the issue of the measure being progressive in nature. Given that the tax is implemented on the "upper" stream of economic activities (effecting higher income groups more), they would not be unpopular

with the majority.

The main problem arises with the actual implementation of this concept, i.e. the pricing. What percent of the fuel price should reflect the damage done to the environment by a car user? How much should an industrial user of natural gas be charged to reflect the scarcity of this resource? Environmental economics currently offers several alternative valuation methods, which are suitable under different circumstances.

However, no matter which valuation method is used, it can always be argued that the "true” price will always remain elusive. However, we can still arrive at a workable estimate of cost that can be kept in mind when we are figuring out the price tag for environmental damage.

We can use the principles behind a green tax to analyse the tax structure of the car import sector. This is one sector that definitely does not subscribe to the ideas behind green taxes.

Recently, the government, through a statutory regulatory order (SRO), allowed import of six-year-old reconditioned cars. The purpose was ostensibly to make reconditioned cars affordable, and also to reduce environmental pollution. Since older cars are less environmentally friendly and less fuel efficient, this particular move does not sit well with the principle of charging an entity that causes an externality or that uses more of a scarce resource (gas).

The National Board of Revenue (NBR) then fixed the rate of depreciation at 50% on these reconditioned vehicles. This further reduced the tax on import of these cars.

We seem to be one of the few countries that are hell-bent on making motorists use old vehicles when they could be using spanking new cars instead. We do this through an antiquated tax structure that does not take into account the lower fuel efficiency of older cars, or the harm they cause the environment.

Externalities produced by these vehicles in the form of environmental damage and higher use of fuel need to be factored in to work out the exact rate of taxation. The more rational idea would have been the application of a green tax on vehicles that are less fuel efficient and polluting as the standard taxation practice in place of higher taxes on newvehicles.

This will allow the import of new cars (not only re-conditioned vehicles) that are more fuel efficient and environmentally friendly.

It may be argued that taxes on reconditioned vehicles provide a large tax base that can't be ignored or replaced. However, this tax base could be gradually shifted to the import of new cars. The upshot is that we pay the same but get a superior product in terms of efficiency and its impact on the environment. Now surely no one can argue against that'

Navil Mansur Chowdhury Is a lecturer in the Dept, of Economics and Social Sciences. Brae University. E-mail: mnavil@bracu.ac.bd.