October 26, 2020 | Documents

This article examines the extent to which VAT could be used as a tax incentive in the context of the fight against global warming.

Since VAT is a general consumption tax that is already applied by a well-equipped and efficient administration, giving it the character of an incentive ecological tax makes it possible to easily reach all economic sectors that need to be reached without requiring new administrative resources.

However, the contribution shows that using VAT in its current functioning, in particular by introducing rate differentiation to favor green products or penalize polluting products, is an approach which is moderately effective. In particular because of the way VAT operates, notably the right to deduct input tax, the incentive nature of VAT would be essentially limited to final consumers and would have no effect on a very large part of the economy.

The article therefore proposes an alternative approach that would take advantage of the existence of VAT as a general consumption tax and the tax administration that applies it. The idea is to use VAT as a vector to levy a surcharge with an essentially ecological purpose. This “General Green Tax” would be levied in parallel to the VAT. It would consist of an additional rate levied on revenues subject to this tax, but which could not be deducted as input tax by companies subject to VAT. The GGT surcharge rates would obviously be different depending on the goods or services covered by the measure.

The introduction of such a VAT-based ecological tax would require a new constitutional basis. But it would have many advantages that are outlined in the article, including the possibility of a phased implementation and the ability to reach all economic sectors with a simple mechanism that would build on an already existing administration.

The French original version of this article is published in the tax journal Archives de Droit Fiscal (ASA 89 Nr 4 2020/2021)

Pierre-Marie Glauser, University of Lausanne