Taxation Policies as an Environmental Protection Instrument: The Portuguese Case

Introduction

Currently, one of the most important concerns of our States is controlling the environmental damage provoked by the evolution of economical and industrial activities. In particular, the European Union is committed to becoming the first climate neutral continent in 2050, by reducing polluting emissions, fighting the energy poverty, reducing external energy dependency, and improving the general wellbeing (European Green Deal provisions). Therefore, a lot of strategies and measures are being considered to promote the desired environmental protection and the sustainable development.

In this context, we are verifying that most of the countries are using taxation to achieve these environmental and sustainability purposes. We refer to the already known “green taxation”, which usually includes taxes on energy, transport, pollution, and resources.

However, we must not forget that the main purpose of taxes is to generate revenue providing the States with the financial means to fulfil the collective needs of their citizens. When taxes are used to achieve other purposes such as those mentioned above (related to environmental protection and sustainability), we are entering the field of corrective taxes or pigouvian taxes which allows the State to intervene actively in the economic and social domain. Taxes are a very efficient and useful mechanism of dealing with socially undesirable activities, such as the environmental pollution, water and soil contamination, CO2 emissions, use of polluting energies, among others.

The purpose of this study is to analyze the benefits and risks of adopting tax policies based on these corrective purposes, understanding the main strategies adopted, the constitutional and legal framework of these taxes, their limitations and the use of revenues generated through the collection of these taxes. This seems to be relevant specially when a lot of countries, as Belgium, Denmark, Ireland, Italy, Lithuania, Poland, Portugal, Romania and Slovakia, are trying to adopt green tax measures but with little or no detail on specific policies (Gore, Urios & Karamperi, 2022).

In fact, the factors underlying the creation, determination and collection of these taxes are always difficult to define. Which are the most effective taxes? Taxes levied on the consumption of goods and services, on the manufacturing and production of assets, on the exercise of some economical activities? How can Governments evaluate the damages and the impact of these prejudicial actions and the consequent role of these types of taxes? If the idea is controlling and discourage these risky and threatening environmental behaviors, taxes must be determined on this basis. Does a real green tax reform must use just the ecological elements as the basis and main factor for the definition of the general tax base of a country? Is the main objective of the green tax reform the replacement of ordinary taxation by environmental taxation?

It seems relevant trying to determine the way of implementing this type of taxes. It is important to reflect on the impact of the replacement of taxes and contributions on income and applied progressively, which consider the ability to pay of the individual by taxes that affect all equally (based, for example, on the polluter pays principle), regardless of the ability to contribute. It can generate equality and social justice problems, reducing the redistribution function of tax systems (Borges & Merlin, 2018). It cannot work in countries with huge economic and social inequalities as it can seriously affect the general principle of an equitable distribution of the tax burden.

Taking these ideas into consideration, and referring, in particular, to the Portuguese case, the authors consider this study of particular relevance and interest, hoping to contribute to the debate on tax policies and to establish a framework for green taxes in which fundamental tax principles and the coherence of the tax system as whole are duly observed.

Considering this context, the specific objectives of this chapter are:

• *

  Understand the main principles associated with the use of “green taxes”;

• *

  Verify the revenue generated in Portugal with the collection of “green taxes”;

• *

  Analyze the criteria used for the creation e collection of these taxes;

• *

  Discuss the problems generated by this taxation and its impact for the contributors.