A Progressive Holistic Tax model implemented at the consumer level holds the potential to significantly influence behavior towards a more sustainable planet. By shaping consumer purchasing patterns, this approach would compel companies to pivot towards offering goods that are less detrimental to the foundational elements of our planet. Proposed as an alternative to the direct tax model, with the exception of the very high-income category, this innovative concept builds upon the framework of the Goods and Services Tax (GST) model in India. Its introduction warrants thorough discussion and debate to foster holistic progress and ensure the long-term survivability of our planet for future generations.
—
Mahatma Gandhi once said, “The world has enough for everyone’s need, but not for everyone’s greed.”
As a political saint, he influenced masses to free India from British rule through non-violence, preaching the message of “simple living, high thinking,” which reinforced sustainable living principles. Sadly, in our modern world, these ideals have lost their luster amidst warfare, greed, and excessive consumption driven by fossil fuel-based products, which are wreaking havoc on our planet.
Johan Rockstrom, recipient of the 2024 Tyler Prize, often dubbed the “Nobel Prize for the environment,” has warned that six of the nine planetary boundaries have been breached, pushing Earth out of the safe zone. These boundaries encompass land systems change, freshwater change, biogeochemical flows, biosphere integrity, climate change, novel entities, stratosphere ozone depletion, atmospheric aerosol loading, and ocean acidification, with only the last three remaining within safe limits. The scientific evidence of our planet’s peril is unequivocal, and we have a limited window to rescue it from intensive care.
Various factors have contributed to this precarious situation, including unsustainable lifestyles, incessant product upgrades driven by marketing tactics, and extractive technologies leading to increased greenhouse gas emissions and environmental degradation. Furthermore, societal perceptions equating happiness with material possessions and wealth have exacerbated the issue. In contrast, historical wisdom, such as that found in India, emphasized finding happiness by overcoming desires through wisdom without suppressing them, a philosophy now overshadowed.
This consumption-driven culture has led to the proliferation of manufacturing production lines, programmed obsolescence of products, and inflated landfills, exemplified by the staggering increase in average American home size and per capita gross domestic product (GDP) growth.
However, GDP fails to distinguish between activities that enhance well-being and those that degrade it, underscoring the urgent need for a new economic model to restore planetary health and foster holistic prosperity.
The proposed Progressive Holistic Tax (PHT) model aims to reshape consumer behavior towards sustainability, clean technology adoption, and circular economy principles by levying taxes at the point of final consumption. Unlike traditional income taxes, which are inadequate for addressing contemporary challenges, this model directly incentivizes sustainable choices by hitting consumers’ wallets. By taxing products based on their environmental impact, particularly their effect on essential elements like water, soil, air, energy, and space, the PHT model encourages responsible consumption patterns.
How Does a PHT Model Work?
It is suggested that a PHT model have five tax tiers ranging from 0% to 40%. At high tiers, PHT taxes those products or services that wreck the foundational elements of our earth, namely water, soil, air, energy, and space. Luxury products or services in a higher tax tier may also encourage consumers towards more sustainable options.
Implementation
In 2017, India implemented an indirect tax model called the Goods and Services Tax (GST), a comprehensive, multistage, destination-based tax. It is comprehensive because it subsumed almost all indirect taxes; multi-staged as the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer. As a destination-based tax, it is collected at the point of consumption and not the point of origin.
The tax has five tiers, ranging from 0% to 28%. Luxury products and services are placed in the highest tax tier. The consumer never pays a tax on a tax. The Harmonized System of Nomenclature (HSN) code, a nomenclature used worldwide, is also used by GST. Each product has a unique code, thus enabling GST to place different products in different tax tiers.
Key Difference Between PHT and GST
The key difference between the proposed PHT model and GST model is that the former levies a tax on products that destroy the planet at a higher tier, whereas in the GST model, a product that wrecks the health of our soil such as a chemical fertilizer could potentially be in the lower tax tier. Similarly, in PHT, a plastic water bottle could be in the highest tax tier versus canned water in a lower tier. An automobile with a metal-free biodegradable battery could be in a lower tax tier versus one with a lithium ion battery.
Such fine nuances in PHT may necessitate a revision to HSN to account for the environmental degradation of various products. This ensures every country can implement PHT successfully.
Way Forward
Two countries that can urgently implement a PHT-type model are India and the United States for the following reasons:
- India
A highly successful GST system is providing excellent tax revenues for India. A revised HSN code will allow the country to easily leapfrog into a PHT model. In this manner, it can achieve the dual purpose of addressing planetary health and holistic progress. The current debate on streamlining GST towards a 2-tier or a 3-tier model may hinder the progress of implementing a PHT-type model. Instead, India can become the first country in the world to launch a PHT model. It would be a historic achievement and it would help reach net zero faster than anticipated.
- United States
Most of the innovative cleantech startups are in the US. A PHT model will allow these startups to enter the market faster. Today, the ecosystem of big corporations has kept the growth of most of these innovative startups under the lid. For example, there are hundreds of startups that can replace single-use plastics, but none has successfully gained entry into the market because virgin plastic remains significantly cheaper than any other more environmentally friendly alternative. A PHT model would address this issue by changing behavior patterns in the market.
Moreover, the US can streamline its current complicated direct tax law – personal income taxes must be only collected from people in the high-income category. A significant portion of the tax revenues must be collected via PHT (as is happening in India already through the GST mechanism). Income taxes do not influence purchasing behavior at least at the level of achieving holistic progress.
If India can help implement a PHT system for the US, and the US can share its clean tech know-how, then both countries together could demonstrate to the world that a PHT model would succeed in addressing the critical woes of our planet.
Advantages of a PHT model
In addition to fostering holistic national progress, PHT serves as a unified tax system across any nation, streamlining the complexity of various state-level taxes. Revenue sharing between the central and state governments is determined by predefined formulas, mirroring the existing GST system in India.
At the governmental level, PHT streamlines the legislative process, reducing the need for multiple laws and debates surrounding green tax incentives. An independent PHT council, comprising a diverse team of technical and social scientists, utilizes scientific evidence to make informed decisions regarding tax tier allocation for different products, tailored to meet the government’s revenue requirements and economic demands. This market-oriented approach cultivates an environment conducive to the growth of entrepreneurs and clean tech startups, fostering equitable development across all states. Economists should develop and analyze a simulated PHT model to assess its positive impact on overall societal progress, including its contribution to mitigating climate change. Existing GST data from India can shed more light on purchasing patterns at different tiers.
Complementing the PHT model, a national economic planning framework should be established to monitor and manage the foundational elements of our planet.
You might also like: How India’s Carbon Tax Implementation Could Set a Precedent for G20 Countries
