Taxation and Sustainable Development: A European Perspective

Dr Francesco Cannas presented a seminar titled ‘Taxation and Sustainable Development: A European Perspective’ on 16 August 2023. This session was moderated by Associate Professor Stephen Phua.

Dr Francesco began his talk by situating the topic within the concept of the taxation of energy, which was in turn connected to the idea of energy justice i.e. the idea that we need clean and affordable energy. He then outlined three methods of taxation towards energy justice: positive intervention through tax incentives, negative interventions for the correction of wrong behaviours, and environmental neutrality. He further discussed the general definition of energy from a tax perspective before turning to the European perspective on the legal principles of horizontal equity and neutrality which were fundamental principles of the tax system.

In terms of positive intervention through tax incentives, these were one of the keys to develop new technologies. Tax incentives are free-market instruments of different types including tax exemptions or credits and tax deductions. The issue arose as to how to restrict tax incentives to green research as it was difficult to balance between an overly technical and general definition of this term. Further, the concept of horizontal equity was intended to operate without disturbing market dynamics and mechanisms. This was despite the fact that environmental protection is now one of the main goals of the EU under Articles 11 and 191 TFEU. It was accordingly necessary to elevate the impact of environmental protection to constitutional status.

With regard to negative interventions, there were currently many overlapping levies which were disconnected from revenue generation. Dr Francesco then discussed the polluter pays principle and argued for the creation of revenue taxes and regulatory taxes to support sustainability. The polluter pays principle was intended to make the polluter internalize the environmental costs of its activities and is widely based on a legal fiction: environmental protection is disconnected from revenue generated by green taxes. In order to be effective, the levy should be sufficiently high to change the behaviour. As such, the polluter pays principle should be elevated and not balanced with the horizontal equity and ability to pay principles, with any excessive burden prevented under the principle of proportionality.

Finally, on environmental neutrality, Dr Francesco explained how multi-stage consumption taxes are frequently based on the principle of neutrality. He highlighted that unless environmental protection is explicitly provided for, revenue objectives and competition always prevail. VAT can undergo a “greening process,” but it would not become an environmental tax. In conclusion, climate change and the need to rely on clean and affordable energy are global challenges. Taxation can play a role, but it is a domestic instrument. As such, coordination and political will are keys to face these challenges.

Assistant Professor Francesco Cannas presenting

Associate Professor Stephen Phua moderating an engaging Q&A

An attendee posing a question