ACCA responds to the proposed revision of the Energy Taxation Directive (ETD) and fully supports the stated aims of this revision: by sending price signals, taxes are an important lever in changing business and consumer behaviour.

ACCA (the Association of Chartered Certified Accountants) particularly welcomes the European Commission’s intention to shift the tax burden from labour taxation to environmental taxation. As already highlighted in its report Tax as a Force for Good , ACCA believes that this holistic and system-wide policy response is key to addressing the scale of the environmental and social challenges currently facing not only EU member states, but countries around the world.

However,  for the global accountancy body, the impact on regulatory and administrative burden – not just in the immediate transition, but in future years – may need to be more carefully considered in redesigning tax rates and incentives. ACCA believes that for tax policies to achieve their objectives effectively and efficiently, it is important for them to be simple, certain and stable.

Yen Pei Chen, Manager for Corporate Reporting & Tax at ACCA, explains:  ‘As advocated in our report Foundations for a Sound Tax System, it is especially relevant to ensure that changes in energy taxation are first of all simple for member state governments to implement and not costly for tax administrations to administer. Secondly, the changes must be easy for taxpayers to understand and comply with. Finally, those changes must be able to operate consistently and progressively over the long term, so that both households and businesses know how they will be taxed in future years and can plan accordingly’.

‘Where lower tax rates or exemptions currently apply, we would recommend that the existing differences in tax rates are removed progressively, through incrementally increasing tax rates over several years. The annual increase in tax rates should be clearly defined from the start, in order to allow for businesses and individuals to plan ahead and adopt alternative courses of action’, Yen Pei Chen adds.

For ACCA, a forward-looking and adaptable approach is needed in defining the bases on which tax rates should be based. In the short term, reductions in greenhouse gases may be the main priority. However, to achieve climate neutrality by 2050, it will be equally important to reduce the level of energy consumption overall, prevent deforestation and maintain sustainable food crops.

Yen Pei Chen stresses: ‘To avoid the need for significant changes to the ETD in the future, the mechanism for determining tax rates should take into account not only greenhouse gas emissions, but also energy content and the use of whole trees and food and feed crops for energy production. These latter considerations may, at the start, have a zero weighting to tax rates, but once built into the rate-determination mechanism, they can be introduced in future years. This also helps to keep energy tax revenues at sustainable levels, as business and consumer behaviour evolves.’

At this time of economic crisis, it is also crucial that the effective compensating measures are put in place, to mitigate the impact that increases in energy taxation will have on lower-income households. ACCA recommends the latter should be as targeted as possible, and argues that some of the most effective measures may be non-fiscal, such as direct lump sum compensation to lower-income households, improvements to the energy efficiency of existing homes, and creating affordable, sustainable housing stock.

Yen Pei Chen concludes: ‘Meeting the EU’s carbon reduction goals will require businesses to change not only their energy consumption, but also to make more fundamental changes to their business models. We would urge the Commission to consider broader policy incentives to encourage the scale-up of circular businesses, and the adoption of more local, less time-pressured supply chains. The reduction of labour taxation will, to some extent, help with this. However, this also needs to go hand-in-hand with public and private investment, and infrastructure improvements.’

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About ACCA

ACCA is the Association of Chartered Certified Accountants. We’re a thriving global community of 227,000 members and 544,000 future members based in 176 countries and regions that upholds the highest professional and ethical values.

We believe that accountancy is a cornerstone profession of society that supports both public and private sectors. That’s why we’re committed to the development of a strong global accountancy profession and the many benefits that this brings to society and individuals.

Since 1904 being a force for public good has been embedded in our purpose. And because we’re a not-for-profit organisation, we build a sustainable global profession by re-investing our surplus to deliver member value and develop the profession for the next generation.

Through our world leading ACCA Qualification, we offer everyone everywhere the opportunity to experience a rewarding career in accountancy, finance and management. And using our respected research, we lead the profession by answering today’s questions and preparing us for tomorrow. Find out more about us at accaglobal.com