Saturday, January 20, 2018

My thoughts on increasing taxes on electricity and petrol for promoting sustainability

This is regarding a statement I saw in a survey where we had to agree or disagree:

"I would oppose policies that increase taxes on electricity and petrol because they make them more expensive for me."

I felt the part "because they make them more expensive for me" disabled me from agreeing or disagreeing, because now the statement assumes there can only be one reason for opposing such policies : that if I don't support them then it is automatically assumed I am selfish.

I'd like to explain my thoughts on it here.

The original purpose of taxation, when invented, was to fund the various governmental mechanisms needed to ensure smooth functioning of society. Example: transport, law and order, public infrastructure, education, healthcare services. The purpose of taxation was not to discourage use of said service. Tariffs and duties were used, of course for that.

At a macro level, there are many arguments against increasing taxation, saying that money collected by force only ends to doing harm, that the people collecting more taxes don't really have our best interests in mind, that forcing people into something increases the likelihood that they will act to damage it.

Even while keeping all the ills of capitalism in mind, Socialist policies of infinite government expansion haven't been so good either, and their combination that we see today is even worse (subsidies and cheap credit for the rich, burdensome regulations for the small entrepreneurs, and poorer part of population paying more taxes than richer part). History is witness to the fact that many things are too inefficiently and insensitively done by putting governments in charge of everything. Taxing our way out of problems has not really worked out as theorized, because it assumes that those collecting the taxes are Gods or Angels.

In the case of India, recollect the various reportings of massive funds collected by the government for clean energy, environmental work etc lying unspent for long time, and/or redirected into something else totally (like GST reimbursements recently)

In a research project on Pune's Budget data, we found that a large part of expenditures being done under some green label turned out to be unsustainable things like cementing the banks of rivers, streams, canals : a move that kills biodiversity, prevents water retention, increases runoff and leads to floods. Rather, our team felt that if those funds had been directly given to local citizens bodies who actually live there, they would have taken far better decisions and promoted sustainability.

Another problem with taxing essentials (as of today) like electricity and petrol is that you end up burdening everybody, and the people living more sustainably are far more burdened than the people living unsustainably. There is a compounding effect on costs of living. Raising a rupee here will have a 10-fold impact elsewhere.

Another major effect of taxation is a reduced sense of responsibilty. Because I am already being taxed "for sustainability", I will opt for styrofoam or plastic plates etc to cut costs. If I'm paying a swachh bharat cess then I don't care about segregating my waste. My sense of civic duty towards a cause is reduced when you're already pulling money out of my pocket for that cause (and then ending up not doing much good as highlighted above). (Note: I'm just putting myself in the shoes of people around me here)

So, I would say that if we cannot guarantee proper accountability and transparency of our government (which, frankly, we cannot), then it is a bad idea to promote taxation of electricity, petrol and other such baseline things as a way to promote sustainablity. I fully support taxing jewellery (update : GST on diamonds slashed to 0.25%, on biofuel buses to 18%. See the priorities of our leaders? ), imported cars, liquor, cigarettes and stuff through the roof, sure, but let's call it "duty" or "tariff" and not call them taxes. There are more chances of citizens voluntarily putting money into sustainability causes if it stays in their pockets instead of being fleeced out by overbearing governments. Between placing my faith in citizens or government, I choose citizens. I'd rather have folks like Azim Premji creating places like APU than getting taxed out only to fund river cementing :P

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