Governments around the world are increasingly using tax as a tool to achieve green policy goals and make corporate behavior more sustainable, according to KPMG’s Green Tax Index which was recently launched.
The United States of America, Japan, United Kingdom, France, South Korea and China are the most active in using tax as a tool to drive sustainable corporate behavior and achieve green policy goals.
Singapore is ranked as the 14th most active country, out of 21 major global economies, and has a green tax system weighted towards incentives rather than penalties.
This finding is contained in KPMG’s first Green Tax Index, which considers how governments are using their tax systems to respond to global challenges including energy security, water and resource scarcity, pollution and climate change. It analyses green tax incentives and penalties in 21 countries, focusing on key policy areas such as energy efficiency, water efficiency, carbon emissions, green innovation and green buildings.
The report identified over 200 individual tax incentives and penalties of relevance to corporate sustainability. At least 30 new green tax incentives, penalties or significant regulation changes have been introduced in the countries since January 2011.
Said Mr Harvey Koenig, Tax Partner at KPMG in Singapore: “Tax is increasingly becoming a useful tool to change corporate behaviour. It helps to address environmental policy issues such as water scarcity and climate change.
“Green taxation is a rapidly evolving and increasingly complex area. It is imperative that businesses take a pro-active approach to factor green taxes to help reduce costs in strategic investments, drive innovation, improve efficiency and secure competitive advantage.”
Indeed, the Green Tax Index aims to encourage businesses to explore the opportunities of green tax incentives, and to reduce exposure to green tax penalties. Green tax incentives can help companies reshape their business and develop new markets, products and services. Yet so often these opportunities fall through the cracks between silos that often exist between operations, tax, finance and sustainability functions.
Taking advantage of green tax systems
Understanding the green tax systems in the countries where a business operates can allow it to respond appropriately and take advantage of any incentives in place. This allows a business to take full advantage of green tax incentives and effectively managing green tax penalties.
At the same time, it can help them manage related costs, drive innovation and become more resilient to environmental and social change.
The report suggests that not all businesses are fully aware of the landscape of green tax in which they operate in and the incentives that may be on offer.
Mr Koenig added that green incentives can offset any increase in business costs from implementing new measures to comply with new environmental regulations, so it is worthwhile for businesses to invest knowledge and effort in understanding such measures.
In the index, Singapore is ranked highly in the use of taxes to encourage pollution control and ecosystem protection and energy and water efficiency. The republic also scores higher on green tax incentives than it does on penalties.
Examples of tax incentives in Singapore include Research and Development tax incentives that also extends to green innovation and the Land Intensification Allowance (LIA) incentive, a scheme to promote more efficient use of industrial land. The Water Conservation Tax was also introduced to encourage efficient use of water, in an attempt to address water scarcity issues.
There are also a range of non-tax incentives which can complement the use of green tax. These include MND Research Fund for the Built Environment which is a funding initiative by the Ministry of National Development (MND) to encourage ‘green’ research and development by covering up to 75 percent of project costs.
The Grants for Energy Efficient Technology (GREET) programme is also available to provide funding for up to 20 percent of qualifying costs, capped at S$4 million per project. Businesses can tap into this scheme to assist companies buying technology that would help them use energy efficiently.
Mr Sharad Somani, Partner, Climate Change and Sustainability said: “As Singapore seeks to grow its economy and upgrade its infrastructures to support businesses, there is a pressing need to address the issue of energy efficiency, given its lack of natural resources, as well as climate change. It is a strategic imperative for companies to understand the green tax environment, connectivity with other sustainability issues and its implications for their businesses”.