The next step is to separate environmentally related from other taxes and derive ERTR data. This section describes the method to identify environmentally related taxes. A logical starting point for compilers is to consult existing data on tax revenue reported in the national accounts, the OECD Revenue Statistics, the OECD PINE database, and/or the national tax lists, even if not all ERTR can be directly distilled from them (see Annex B for further information on potential data sources). It is crucial to note that the decision of whether (or not) a tax is considered environmentally related is made according to the specific tax base on which the tax is levied.
It is important to explain the rationale for referring to the taxes described in these guidelines as environmentally related, given that some existing approaches label the same taxes as environmental. In the economics literature, environmental taxes are motivated by internalising externalities through the alignment of tax rates with marginal external costs, or – more loosely – by using taxes to reduce environmentally harmful behaviour.3 In practice, the identification of environmentally related taxes is made by using tax bases of particular environmental relevance (OECD, 2006[11]), without requiring environmental motives or the alignment of tax rates with marginal external costs (Table 1). Importantly, while existing approaches (SNA, SEEA, IMF GFSM and Eurostat’s guide) refer to such taxes as environmental, their identification method is identical to the one outlined in these guidelines for environmentally related taxes.4
These considerations, in line with existing OECD work on this issue (OECD, 2006[11]), yield the following definition of environmentally related taxes:
“Environmentally related taxes are taxes whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific, negative impact on the environment.” (United Nations et al., 2014[1]).
Ideally, environmentally related tax bases comprise physical units that are directly linked to environmental pressures (e.g., emissions, pollutants). However, for practical or administrative reasons, these tax bases are sometimes not directly taxed. Instead, inputs or outputs of activities closely linked to environmental pressures (e.g., fuel consumption, ownership of cars) are used. In such cases and in line with existing approaches, these tax bases should be used to identify environmentally related taxes.
Table 1 provides a list of tax bases to identify environmentally related taxes. The list is generally in line with other approaches in use with a few additions, which are discussed in Section 2.9. It describes the currently identified tax bases with environmental relevance and should be seen as a “living list” that could be adjusted over time. There is no straightforward objective criterion that could be used to define what is “environmentally related” since such taxes are crosscutting standard tax classifications.5 Therefore, the list of environmentally related tax bases is a practical way to identify relevant taxes. If a tax base is considered environmentally related, all revenue arising from this tax is recorded as ERTR in the accounts.
The decision on whether a particular tax base is environmentally related can to some extent be country-specific, in particular regarding the level and type of environmental pressures associated with the tax base. For instance, Table 1 indicates that electricity is an environmentally related tax base. However, the environmental pressures arising from electricity generated by burning coal versus from hydropower, for instance, differ in both magnitude and type of pressures (e.g., CO2 emissions for coal and biodiversity impacts from land use change, if any, for hydropower). Thus, in exceptional circumstances, country compilers may choose to not include certain tax bases in the absence of a proven, specific, negative impact on the environment.
For the time being and in accordance with other approaches in use, the guidelines recommend excluding the following taxes from the ERTR accounts:
Taxes not considered as such in the national accounts are excluded from the ERTR accounts. The only exception are tax revenue raised on profit taxes related to the resource rent, which are recommended to be recorded under Memo Item 3 (see Section 2.9 for details). The reasons for including this information as a memo item are its relevance for policy analyses, its limited availability as well as comparability across countries.
In principle, the guidelines recommend excluding general value-added taxes (VAT) and goods and services taxes (GST), general profit taxes, personal income taxes and labour taxes from the ERTR accounts. The reason for excluding such general taxes is that they are considered to not change relative prices in the same way that taxes levied on environmentally related tax bases do. There are two exceptions (see Section 2.9 for details): (i) It is conceptually in line to include in the ERTR accounts the revenue generated from an elevated VAT rate levied on tax bases that are environmentally related and included in Table 1 because such tax would alter relative prices; (ii) profit taxes related to the resource rent are included in the ERTR accounts under Memo Item 3.