Friday, October 26, 2007

How Green Was My Valley - Law Street in The Economic Times, October 26, 2007

Hi Readers,

Climatic change is a reality. It is sunny in the morning and begins to pour later on in the evening (at least we are experiencing it in Bangalore or Bengaluru). Zenobia Aunty, thinks the government must dangle carrots in the form of tax sops as this will help make a better greener world. So read on, by clicking here.

As always for your reading convenience, the article is also cut and pasted below.

Have a nice weekend. Use less paper, save the trees!

How green was my valley?

26 Oct, 2007,


Zenobia Aunty fondly remembers the movie — How Green was my Valley. It may have nothing to do with taxes but as always she brings tax into the picture in any and every conversation. Life is ‘taxing’ with her around the house, no wonder this columnist spends so much time at her office. She was so excited when former US vice-president Al Gore and the Intergovernmental Panel on Climate Change (IPCC), which is chaired by Dr Rajendra Kumar Pachauri, won the 2007 Nobel Peace prize that she and Spot performed an impromptu crazy jig in the local park. Perhaps in their own way, they did spread awareness of Global Warming.

Zenobia Aunty just can’t figure out the climate in Bengaluru these days and just hates it when the rain prevents her and Spot from taking their morning walks. For instance, it was a warm sunny morning today and presto just when Aunty decided to stop across at a nearby cafĂ© for muffins and coffee, it began to rain cats and dogs (Spot wonders why we humans coined up this phrase, but that would make for another column.) Any guesses for what she did next when she came back home? Of course, she grumbled. But, in addition, she zoomed on to the topic of ‘green taxes’. Our government had actually ‘warmed’ up to this topic quite a few years ago, before Climate Change hit us smack in the face. Today, no weather report can be accurate, or so it seems.

A notification issued in February 1983 introduced for the first time a higher rate of depreciation of 30% for pollution control equipment as compared to 25% available to general plant and machinery. This 30% was gradually increased to 100% in the 1993-94 budget. In short and simple terms, in India, the depreciation rate is 80% for energy saving devices and 100% for air and water pollution control equipment. Wind farms, which were once looked upon as a mere tax planning device — especially since they attracted the attention of Bollywood and our cricketers — are today churning out a success story.

Yet there is much more that can be done. But the government should remember that it is better to dangle the carrot rather than use the stick. If the other approach is adopted, it could even hit the poorest in the society. We have seen rasta roko’s when the state governments in a few states tried to impose additional tax on polluting road transport. The UK government has very recently announced a new tax on flights; in fact it has shifted the proposed burden from passengers to the airlines. It is a tax that penalises airlines for flying their aircraft half empty.

It will come into effect on November 1, 2009 and in the meantime, air passenger duty tax will stay at its current levels. We don’t know, as yet, how this will work. Perhaps, flights may operate only during peak hours so that they are full of passengers. This may save the environment but not those who have to travel in an emergency situation. Green taxes must be thought through carefully. In fact, it is ‘green tax relief’ which would be more effective. Today, in India, is there any incentive for anyone to buy a smaller, fuel-efficient car rather than an SUV, which comparatively is a fuel guzzler? Or what would this columnist get, if she adopted rain water harvesting techniques for her retirement home, which she is currently dreaming of? Well, water may soon be a very precious commodity and needs to be conserved. For that matter, donations made to environment preservation societies should also be eligible for deductions similar to charitable donations.

The US-based IRS has some interesting stuff on its website. Zoom off in an Altima Hybrid, 2007 and you can get a credit of $2,350. A form called the ‘Alternative Motor Vehicle credit’ with various details filled in has to be attached to your tax return. Federal tax incentives are offered on purchase of new hybrid, lean burn, alternative fuel and electric vehicles, such as the Altima mentioned above.

Once again, Kay Bell, the US-based tax writer, provided some useful insights to Zenobia Aunty on what else is available by way of ‘green tax relief’ in her home country. Kay says that purchase and installation of specific products such as energy efficient windows, insulation, doors, roofs and heating and cooling equipment in the home can get one a tax credit of up to $500. The Tax Relief and Health Care Act of 2006, extended a portion of the energy efficient tax breaks for another year, providing substantial tax breaks of up to $2,000 for qualified photovoltaic, fuel cell and solar water heating systems.

The possibilities are endless. A little push from our finance minister in the right direction may lead to a greener environment. For now, Zenobia Aunty extends her heartiest congratulations to Al Gore and Dr Pachauri and to all employees of the IPCC and prays that there is hope for this world.

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