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Future-proofing tax to make it green, digital and fair

Author: ICAEW Insights

Published: 21 Apr 2021

How can tax systems help solve the climate emergency? Is it possible to tax digitalised businesses? And what tax challenges and solutions do ageing populations pose?

These complex, multifaceted questions and more were discussed in Accountancy Europe’s Future-proofing tax: make it green, digital, fair last week, which gathered speakers from around the tax world to discuss how to make taxation green, digital and fair.

Tax is the problem and the solution

Chiara Putaturo, EU Inequality and Tax Policy Advisor at Oxfam opened the panel section of the webinar by stating that a sustainable tax system allows recovery from the current crisis while taking into account the two challenges that are the most relevant for our time: inequality and climate change.

Putaturo said: “For us, these challenges are closely interlinked. We were already living in a very unequal world before COVID and the crisis has made the gap between rich and poor even deeper. Oxfam has shown that the top 1,000 billionaires have recovered what they have lost during the crisis in only nine months - some have even seen their fortunes increase. While on the other side, we estimated that the poorest would need over a decade to recover.”

As well as being one of the main sources of inequality and climate change, Putaturo describes how the tax system can offer solutions for both challenges.

“We think that progressive taxation, including environmental taxation, together with fairer international taxes and increased transparency can have a redistributive effect and disincentive polluting behaviours”, she explained.

Tax systems are from a business perspective

Another speaker of the panel, Maria Volanen, Head of Taxation Policy, Technology Industries of Finland, covered what sustainable tax systems are from a business perspective. 

Volanen spoke about Technology Industries of Finland (TIF), a lobbying organisation for Finnish technology industry companies, and how it made a low carbon roadmap last year which found that most of the emission reduction methods are based on electrification and digitalisation. But where does taxation fit into this process?

“Taxation is a toolkit, not a goal. We need to know the goal before we know what tools to use”, stated Volanen.

To achieve these emission reduction methods, Volanen explained the four goals the ‘taxation toolkit’ will assist in reaching:

  • Green - “the first and most important one is green: with the goal of cutting emissions, we need energy and environmental taxation for that. We need the ‘carrot and the stick’ - we need taxation, but we also need to support low carbon solutions and R&D tax incentives”, she explained.
  • Digital - “to achieve the digital goal there would have to be a steady operational environment that advances investments into a well-functioning, appealing digital single market.
  • Fair - “fair taxation has to be considered on a global, member state, company and individual level, with impact assessments that will provide long-term predictability and tax certainty.
  • Global cooperation - “this should be preferred to avoid trade tensions and tax disputes and ensure that the EU is globally competitive. The proposed idea to achieve this is through an OECD solution for a digitalised economy which will cover the global price of carbon and global principles for environmental taxation.”

What role does tax expenditure play?

The next speaker, Agustin Redonda, Council on Economic Policies, based his presentation around the role that tax expenditure plays in tax systems and sustainability. Redonda laid out a three-step approach to reforming tax expenditure systems which he thinks is vital to mitigate budget constraints and better align tax systems with a broad sustainability agenda.

Redonda explained: “When it comes to green taxes, I think we can all agree that phasing out fossil fuel subsidies (FFSs) is crucial to greening tax systems. In 2019, FFSs through direct budgetary transfers, tax expenditures and induced transfers amounted to $478bn in 77 economies according to the latest OECD estimates. Roughly 60% is granted through the tax system as tax expenditures.”

While the speakers recognised there was still a long way to go before tax is playing the type of role they envisage in tackling the global issues of the day, there was general positivity around the travel. A good starting point, the chair suggested, was around the idea that taxes could be used to incentivise investment in green energy, reward R&D expenditure through tax reliefs or credits, or perhaps for those businesses with a very low carbon footprint.

The webinar also marked the launch of Accountancy Europe’s sustainable tax project series and calls for contributions to promote a dialogue between policymakers, civil society and business. 

Members can watch Accountancy Europe’s webinar by clicking this link - Future-proofing tax: make it green, digital, fair.

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