The tangible effects of climate change are an ever-growing challenge that society has to face. In a fast changing world, tax systems need to adapt too. And tax has an important part to play in tackling the unrelenting pace of climate change. 

 

In a report released today – Tax as a force for good: Rebalancing our tax systems to support a global economy fit for the future - ACCA (the Association of Chartered Certified Accountants) calls on governments to rethink the design of the tax system holistically. The report proposes a ‘tax evolution’: increasing taxes on pollution and natural resource use, and reducing the tax burden on labour. 

 

Specific tax measures, such as a carbon tax, landfill levies or taxes on single-use plastic, 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.

 

ACCA’s corporate reporting and tax manager, Yen-pei Chen, says:

 

‘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.’

 

Yen-pei Chen continues:

‘Businesses are already paving the way and staying relevant for the future, by applying internal carbon and water pricing. The business case to act now is clear: achieving the UN Sustainable Development Goals can open up at least $12 trillion of market opportunities across the world in different sectors, according to the Business and Sustainable Development Commission.’

 

‘According to the OECD, more than half of all greenhouse gas emissions are related to materials management activities. It is therefore key to shift to a circular economy: a carbon-neutral and regenerative model in which products are made to be made again. 

‘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.’

 

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