Does Pakistan need a Carbon Tax? An Exploratory Study

Moazzam Ali

Abstract

The climate change as by-product of rapid economic growth around the world is threatening the sustainability of the natural environment and the functioning of human life. The global economies are devising mechanisms to reduce their carbon footprints in order to control the factors responsible for climate change. These mechanisms in their various forms involve imposing carbon taxes or establishing cap and trade systems. This study fills the gap in literature by looking at the existing tax structure of Pakistan and exploring the potential of green or carbon tax to be imposed in Pakistan. This paper explores the green tax potential in Pakistan by using the annual carbon emissions data of GHG Emissions Inventory and the commitments made by the Government of Pakistan under the Intended Nationally Determined Contribution (INDC) to the United Nations. The carbon taxes estimated in this study are much smaller than the already charged other taxes, on the use of oil and gas products in Pakistan. However, there is a need to devise suitable incentives and penalties to encourage industries and the general public to engage in lower Green House Gas (GHG) emissions activities. The second part of the paper is related to the designing of some carbon tax breaks in the form of tax exemptions, tax credits and tax depreciation for individuals and companies in Pakistan.

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