Green Taxes: A Useless Thousand-Headed Hydra?

The mythological character known as the Hydra had multiple heads, which fired a poisonous breath, and each head, when cut, developed into two more. The myth says that the only one who succeededd in fighting the Hydra was Hercules, helped by his nephew Yolao.

Since for each head cut by Hercules, two more powerful heads were born, Yolao was commissioned to burn each stump to avoid duplications, so that Hercules finally achieved its mission and killed the creature.

Some of us find a clear analogy between the mythological character and the eco-taxes. Each time a government announces that en eco-tax will be cut, two or more normally appear in its stead.

One of the most eagerly awaited reports on the Spanish taxation scheme saw the light last February. The document was produced by the Committee of Experts for the Reform of the Spanish Fiscal System. Colloquially known by “Lagares Report” following the name of Manuel Lagares, the head of the team of writers ,  the Report heavily focuses on Personal Income, Corporate and Value Added taxes. However, there is also place in its more than 400 pages for the environment. A quick reading allows to glimpse what many of us have already known for long:  there is currently a variety of environmentally related fiscal "schemes", (incorrectly called ´green taxes”) with the common feature that most of these taxes present material disparities between the different Autonomous Regions.

One of the significant aspects of the Lagares Report is the conclusion that the environmental taxation in Spain is clearly lower than the European average, including lower rates on energy. According to the document, the goals of the pending "green" tax reform should be twofold: on the one hand it must encourage an environment-friendly behavior and, on the other hand, obtain additional revenues that could serve to reduce the existing tax burden on labor.

However, the report does not elaborate on the fact that the Spanish income level is lower than in many of the countries having a higher environmental taxation, while being (on a percentage basis) extremely high. For example, more than 50% of each electric bill goes to taxes.

One of the current material Spanish problems is the large array of environmental taxes that exist at regional level, from water, atmosphere or energy to supermarkets, waste, tourism or environmental impact .  In addition, it is often not so clear that these taxes actually have the environmental purposes that would make them be know as “green taxes” .

Notwithstanding such a conclusion, the Report presents a battery of environmental tax proposals that can be summarized as follows:

* Review the Excise taxes, the superstores, the Wind Royalty and Waste Tax.

* Match the tax bracket of diesel with that of gasolines.

* Abolish exemptions from Carbon Tax.

* Create a new tax on the use of mechanical traction vehicles.

* Establish a fee  on the use of transportation infrastructures.

* Create "congestion fees" applied to vehicles entering the Centre of  large cities such as Madrid and Barcelona.

* Replace the taxable basis of the tax on electricity by the number of kilowatt hours used; and drastically limit the number of existing exemptions.

* Delete Regional taxes on large commercial areas and services.

* Delete the regional taxes on Emissions of Carbon dioxide (CO2).

* Create a State tax on landfilling of construction or dangerous wastes, that would be left to the Autonomous Regions.

* Create a State tax on non-CO2 emissions, which should also be applied by the different regions.

* Grant regions a larger scope of authority to establish copayment systems in those public services within their scope of authority.

Nothing of this can be readily seen as a useful simplification of the tax structure.

The tax on fluorinated gases is  a very useful example of what in Spain is understood to be a ´green tax” This tax came into effect on January 1 and is levied on greenhouse gases used in sorays, air conditioning systems and refrigerators.  A tax having a direct impact on the pocket of consumers.

Different business organizations have criticized such a tax on the basis that it will increase the costs of, for example, the installation and maintenance of air conditioners". The tax rate varies depending on the contribution to climate change of the gas used. The legislation establishes four tax rates up to a maximum of 100 euros per kilogram of gas. According to the Ministry of Agriculture, Food and Environment, "this measure is a recommendation of the European Union which seeks to reduce emissions of these gases by two thirds by the year 2030.

Some estimates are that this green tax  will increase tax revenues by some 340 million Euros.  What is not clear is that the monies so collected will actually have "a green use”

Looking  into the future

Some regional Governments have explained that - at the moment - they have no intention of imposing new taxes but, primarily, their will is directed to see taxes decline.  Attitude clearly opposed to the Expert who wrote the Lagares report, whose wording indicates that its writers intend to. change, replace, match, delete, integrate, consolidate, assess, reform and correct a large number of taxes.

Other experts who have expressed their opinions on the different media consider that the Report  intends to address a material “green tax” reform by means of a deep change in the taxable bases of, for example, CO2 emissions and energy contents. Therefore, experts demand the amendment to the current Tax on Hydrocarbons by proposing to split the rates: one rate for energy and another for CO2. (i.e. two taxes instead of one)

Regarding transportation, the Committee of experts proposes to modify the current levies on mechanical vehicles with the introduction of a new environmental tax on the use of vehicles of mechanical traction that add to the municipal environmental fee currently based on CO2 emissions;

And although the experts propose the abolition of certain taxes and cannons (supposedly environmental) established by the Autonomous Regions on the grounds that they are not well founded, such as the (i) taxes being applied to tax and services of Supermarkets, (ii) the wind Cannon; (iii) the tax on water stored in reservoirs and various other regional taxes on CO2 emissions, the experts also intend, as we have seen, to grant larger legislative authority the Regions to establish copayment systems in those public services falling within their scope of competence.

None of these “suggestions” lead to think that a simplification of the current environmental tax system is on the horizon, while raising raises serious doubts about the destination of the funds raised that may not have a truly environmental application.

Waste: A special case

Several Autonomous Regions (Andalusia, Cantabria, Castile and Leon, Catalonia, Extremadura, La Rioja, Madrid, Murcia and Valencia) apply specific taxes to certain waste related activities such as landfill deposits. The tax consequences are easy to imagine: when the transportation cost is less than the tax, the waste crosses administrative borders to be deposited in neighboring regions and distort the market by establishing comparative grievances.

Catalonia has established taxes on waste incineration and waste from construction, while Andalusia has a tax on Hazardous Waste and Nuclear Waste. Furthermore, the central government has created a State tax on storage of nuclear waste that does not fall within the scope of authority of the different regions.

With regard to the tax on containers for waste storage, we can notice two different models applied at regional level that the central government wants to simplify through the creation of a single national tax applicable to the four main taxable elements: (i) the landfilling of inert waste, (ii) the construction waste, (iii) the hazardous waste; and (iv) the incineration of waste. Such tax would essentially follow the model of the existing regional taxes and would transfer to those Autonomous Regions having legislative authority on the matter (not all of them...) of the ability to set tax rates (within a maximum and a minimum to be set by national legislation) and the management and use of tax proceeds.

While it is possible to glimpse a modest attempt at unification here, nothing ensures that in the event the tax unification shall actually take place, there will exist (i) uniform tax rates that would eliminate comparative grievances or (ii) a uniform revenue management that would reduce the level of paperwork and bureaucracy allowing companies and their management to understand the tax system and its implementationrequirements.

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