Global

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  • Service: Tax
  • Type: Survey report
  • Date: 4/25/2013

Water efficiency 

There are plenty of dire predictions about water. Supplies will fall 40 percent short of what the world needs within the next 20 years, says the 2030 Water Resources Group.1 We will run out of water long before we run out of fuel, according to the Chairman of Nestlé. And Hilary Clinton believes the risk of future conflicts over water “raises serious security concerns.”2
WATER EFFICIENCY
South Korea 1
China 2
South Africa, UK 3
Belgium, Russia

Source: The KPMG Green Tax Index, 2013.


Yet business approaches to water scarcity are often tactical and short term, and not always built around a longer-term strategic vision.


In a recent study, KPMG found that most of the world’s top 250 companies (80 percent) mention water scarcity in their corporate responsibility reports, but only half report that they have a strategy to deal with it.3


In an attempt to address water scarcity issues, governments – especially of emerging economies - are increasingly turning to their tax toolkits to encourage corporations to conserve and recycle limited water supplies.


The most common approaches are tax credits, deductions or accelerated depreciation for expenditure on water-saving, recycling or treatment equipment. Russia is unusual in that it has a water tax as part of its federal tax code.


Although water incentives and penalties have not traditionally been widely regulated through governments’ tax legislation, KPMG expects that increasing levels of water scarcity will prompt more governments to use their tax codes to modify behavior in the future.




South Korea

South Korea offers various incentives related to water scarcity and conservation including a tax credit for 10 percent of expenditure on water conservation, treatment or recycling equipment. This applies to investments made until 31 December 2013.


An additional tax credit of up to 6 percent is available if the company acquires new equipment specifically to carry on a business to treat waste water or waste material (including recycling) and maintains or increases the number of employees compared to the previous year. This provision stops on 31 December 2014.


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China

China, since 2008, has offered businesses 3 years corporate income tax exemption and a 50 percent reduction for a further 3 years on income derived from water conservation. In addition, 10 percent of the amount invested in specialized equipment used in water conservation may be credited against tax payable by the enterprise for the current year.


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South Africa

South Africa allows businesses to deduct 100 percent of their investments in water treatment or recycling assets over a period of 4 years.


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UK

The UK offers enhanced capital depreciation of 100 percent of qualifying water efficient equipment in 1 year.


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Belgium

Real estate in Belgium is subject to a tax based on its rental value depending on the location. With municipal surcharges, the effective tax rate can be 50 percent of the rental value or more. Water treatment sites are exempted from this tax.


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Russia

Few governments impose a state or federal water tax, although most charge levies or fees via regional water authorities and/or environmental agencies.


One of the exceptions is Russia, where there is a federal water tax as part of the Russian Federation tax code, although tax rates are differentiated according to what the water is used for and which river basin it is extracted from.


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Other water-related tax incentives

Singapore is also noteworthy in that it prices its water to reflect its scarcity value and, in 1991, introduced a Water Conservation Tax designed to encourage efficient use of water. For non-industrial businesses, the rate of this tax is 30 percent but industrial usage is exempt.4


Australia is in the process of implementing legislation that will exempt grants provided under the Sustainable Rural Water Use and Infrastructure Program from both income tax and capital gains tax. Waste water is also a covered sector under Australia’s carbon price mechanism and, as such, there is a financial incentive to minimize carbon emissions from waste water through recycling and treatment.


India does not yet have tax incentives in place for the installation or use of water efficient equipment, but the Indian government is soon expected to introduce a water regulatory body, the National Bureau of Water Use Efficiency. Tax incentives may be introduced thereafter.


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Non-tax incentives

Many countries are encouraging more efficient use of water and addressing water scarcity issues through non-tax instruments and incentives such as grants and subsidies. This Index focuses on tax-related instruments and so grants have not been factored into the scoring, however the following are examples of notable initiatives.


Australia uses direct grant funding to influence behavior in the water sector, as it does in other environmental areas. For example, the Australian government is providing AUD450 million (USD470 million) for the On-Farm Irrigation Efficiency Program and has committed AUD3.1 billion (USD3.23 billion) to the "Restoring the Balance" in the Murray-Darling Basin program to purchase water for the environment. Many of Australia’s programs focus on specific regions of the country, especially those that rely heavily on catchment areas such as the Murray-Darling Basin.


Singapore’s government has various significant grant programs currently in existence. For example, one initiative provides 80 percent of qualifying costs or SGD600,000 (USD480,000), whichever is lower, to integrate water efficiency improvements into the early design stages of manufacturing facilities. The reasoning is that designing facilities to be water efficient from the ground up can reduce the capital cost of the system and generate long-term savings in resource use.


Singapore also offers The Innovation for Environment Sustainability (IES) Fund, managed by its National Environment Agency. This fund helps companies to implement environmental protection and public health related projects. The proposed projects must be at the applied research and test-bedding stage of technology development and help Singapore meet its goal of environmental sustainability. Water efficiency projects are eligible for these grants which cover a portion of project costs, up to a maximum of SGD2 million (USD1.6 million) for a duration of 3 years.


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Sub-national initiatives

Innovative water-related tax and non-tax benefits are often available to businesses at sub-national and municipal levels.


For example, Canada's city of Toronto has a Capacity Buy Back Program offering cash rebates to commercial organizations that implement permanent process or equipment changes that save water. The one-time cash rebates are up to CAD0.30 (USD0.30) per liter of water saved per average day.


The US' California’s WaterSmart Commercial Program also offers rebates for water efficient fixtures and equipment.


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1 Water Resources Group, 2009. Charting Our Water Future.

2 http://www.bloomberg.com/news/2012-03-21/u-s-intelligence-says-water-shortages-threaten-stability.html. 18 June 2012.

3 KPMG International. October 2012. Water Scarcity: A dive into global reporting trends.

4 http://www.pub.gov.sg/general/Pages/WaterTariff.aspx. Accessed 21 March 2013.

 

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