Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Proposal for a carbon tax

Posted by butalidnl on 23 December 2009

I think that a carbon tax would be a good idea to implement in the Philippines. A carbon tax is a tax based on the amount of carbon dioxide that is produced by various fossil fuels.  In order to lessen the impact of such a carbon tax on the people, we should make it “revenue neutral”, that is, that the tax is not aimed at making more money for the government. Thus, the amount it raises should simply offset the amount that is freed as a result of lowering income and other taxes.

My proposal is to have a substantial carbon tax – something in the tune of increasing gasoline prices by 50% or so. At the same time, income taxes on individuals and corporations should be lowered accordingly. Of course, the effect this would have per individual will vary, but it should not vary too much. The tax will be on the amount of carbon dioxide produced – thus, coal will be taxed the most, while LPG the least.

The advantages of this carbon tax will be:

Facilitate Tax Collection
There is no escaping a carbon tax – so in this sense, everyone will have to pay this tax. And it is easy to implement – simply tax the oil and coal importers. The cost will then be passed on “downstream” through the electricity cost, transportation cost, etc.

While the aim will be for it to be revenue-neutral, it may end up taxing people who do not pay income taxes at the moment. Take the case of the families of Overseas Filipinos – they will have to also pay for this tax.  A problem with the carbon-tax will be that poor people may pay disproportionately more tax than those better off.   In order to offset this effect, minimum wages should be raised a bit.

Lower income taxes
The income tax on individuals and corporations will be lowered, freeing money to be used in paying the carbon tax.  People will have more disposable income, and while they will probably use most of it to pay for transportation, they still have a choice to lessen this in various ways. The money freed would also be used on other things, thus stimulating the economy.

Stimulate service industries
Service industries, particularly those that use comparatively little carbon, stand to gain from this scheme. Take for instance the business process outsourcing industry, which spend more on salaries and less on carbon, will gain from this. Of course, the carbon tax will fall heavily on industries such as metal processing or even fertilizer manufacturing; but this will be partially offset by the decrease in corporate income taxes.

Lesser Carbon
As a result of the carbon tax, there will be a noticeable reduction in electricity and gasoline/diesel expenses by the population. Since it will cost more, it will pay to economize in the use of vehicles; and it will pay to buy more efficient vehicles, such as electric or hybrid vehicles. Also, things like airconditioning would be made more efficient. In general, people will consider economizing on electricity, since it would be count as a more significant expense. Alternative energy will also become cheaper when compared to traditional fossil-fuel generated energy, and this will in turn facilitate the installation of alternative energy sources, such as wind and solar energy, all over the country.

Taken together, all of this will reduce the carbon dioxide emissions of the country.

One Response to “Proposal for a carbon tax”

  1. taxation in the philippines…

    […]Proposal for a carbon tax « Carlo's Think Pieces[…]…

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