Carbon taxes

The Government has been roundly criticised for its decision to impose carbon taxes on vehicles. The new tax, which was announced last week, will be levied based on the year and engine capacity of the vehicle, but according to its detractors this would not be equitable and the tax would not protect the environment. 

Owning a vehicle is an aspirational goal for many Sri Lankans. This is largely because vehicles, even small tinny cars, are slapped with huge taxes to keep a persistently high trade deficit under check. Last year the Government increased taxes on smaller cars, which are preferred by many urban families, to protect reserves and stave off pressure on the rupee. In anticipation of elections later this year, as well as general elections in 2020, hopes have been expressed that these taxes might be reduced temporarily, even though no statements have been made by the Government.

The tax, though billed as a “green tax”, comes on top of a mandatory emissions test, which already provides the Government with significant revenue. The new carbon tax is expected to earn the Government an estimated Rs.2.5 billion, and is the primary reason for its implementation as the Finance Ministry eyes a challenging 3.5% deficit target in an election year. One of the main criticisms of the tax is that it is levied by manufacture year and engine capacity, rather than by calculating the emissions. 

The mandatory emissions test is supposed to ensure that even older cars are kept in decent condition. Moreover, older vehicles or pre-used cars are often bought by the middle class, and they will have to pay a disproportionately high tax when compared with their income, even though their vehicles may not necessarily emit more pollutants. Many middle class people also do not use their vehicles on a daily basis, preferring to run them on the weekends for personal errands, and use public transport to get back and forth from work. 

Experts have also argued that larger engines are not necessarily guilty of higher emissions. Technology advances by manufacturing companies have resulted in reduced emissions, and smaller cars may emit more emissions when carrying larger loads. The diverse use of vehicles by their owners makes a carbon tax difficult to justify, especially when considering that it will have direct impact on consumption trends of vehicle owners. 

The carbon tax exempts electric vehicles, but studies have shown that electric vehicles are actually more responsible for emissions during their manufacturing process, and since Sri Lanka uses coal and thermal energy as much as it does hydro, the carbon emission is simply shifted to a different point in the value chain.  This is why in many other countries carbon taxes are slapped on power generation companies, such as coal power plant operators, but since the Ceylon Electricity Board (CEB) has a monopoly on power generation there is no point to such an effort. To make matters worse, all State owned vehicles are exempt from the carbon tax, even though they are arguably more used and worse maintained. 

Slapping on carbon taxes and justifying it on “green” grounds is disingenuous in this instance. There is no guarantee the proceeds from the carbon tax will be used for protecting the environment. In fact this Government has been as inadequate as its predecessor in protecting Sri Lanka’s environment. In such a situation, the Government would do well to simply say the tax is because it needs the cash rather than attempting to hide behind moral grounds.