Call to rethink tax system to tackle climate change

In the week of the annual UN conference on climate change, ACCA is calling for governments to rethink the design of the tax system holistically in a bid to counter the impact of climate change on business and society, by increasing taxes on pollution and natural resource use

The association says specific tax measures, such as a carbon tax, landfill levies, or taxes on single-use plastics may help but they are no longer enough. In order to craft a tax system that is fit for the 21st century, it is necessary to think more widely about what governments should be taxing, and how the tax revenues should be used.

Yen-pei Che, ACCA’s corporate reporting and tax manager, said: ‘We are urging governments to rebalance the tax system to allow countries to meet their carbon reduction targets.

‘Governments need to put a price on pollution and resource-use, starting with abolishing fossil fuel subsidies and pricing carbon emissions. Tax revenues can be used to reduce taxes on labour and increase social protection, in particular addressing the needs of lower-income households.

‘Lowering the labour tax burden will help governments to achieve their UN Sustainable Development Goals, by getting more people into decent work.’

ACCA said companies were starting to see the business case for switching to a more holistic approach, with organisations applying internal carbon and water pricing. The report points to research from the Business and Sustainable Development Commission suggesting that achieving the UN Sustainable Development Goals can open up at least $12 trillion (£9.4 trillion) of market opportunities across the world in different sectors.

Femke Groothuis, president of the Ex’Tax Project, highlighted the need to shift to a circular economy, a carbon-neutral and regenerative model in which products are made to be made again. According to the OECD, more than half of all greenhouse gas emissions are related to materials management activities, so reducing demand for new products would result in reductions.

Groothuis said: ‘When pollution and primary resources are tax-free (and even subsidised) and labour costs are high, businesses face a barrier to scale up inclusive circular activities. Shifting the tax burden from labour to resource-use, including CO2-emissions, will therefore be crucial to achieving the circular and climate ambitions set by governments and businesses.’

Tax as a force for good: rebalancing our tax systems to support a global economy fit for the future is here

Report by Pat Sweet

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