A critical analysis of environmental taxes in Mauritius; A comparative study with South Africa

ABSTRACT

Mauritius is a highly vulnerable country with respect to the negative impact of climate change. In this respect, it is imperative to address environmental issues through various instruments and one particular tool chosen for this purpose is fiscal measures in the form of environmental taxes. Consequently, the objectives of this research are to critically assess the various types of environmental taxes in Mauritius and to provide recommendations to enhance the existing framework on environmental taxation as a policy instrument to alleviate pollution and environment degradation in Mauritius. In particular, the carbon taxation, motor fuel taxes, vehicle ownership taxes, Maurice Ile Durable (MID) levy plastic containers levy and environment protection fee among others will be analysed. The methodology applied in this research is a legal analysis of rules pertaining to environmental taxation in Mauritius. A comparative analysis will also be performed to find out the corresponding legal provisions on environmental taxes in South Africa. Since Mauritius is part of Africa, it becomes relevant to compare how one among the African continent’s most powerful economic powerhouses being South Africa, is dealing with environmental degradation and whether Mauritius may implement some of them.

KEYWORDS:

• Environmental taxes
• Mauritius
• tax on motor vehicles
• fuel tax
• environmental fee protection taxes
• climate change and fiscal policies

1. Introduction

In an era of indisputable wrath of climate change, human activities through CO₂ and consumption induced from fossil fuels are considered as the root cause (Lelieveld et al. 2019). Likewise, there is a nexus between the problems of poor air quality and traffic congestion which are likely to constrain economic growth through adverse effects on human health, productivity and wasted time. Environmental taxes are considered as one of the deterrent measures to curb the emissions level through divestment in fossil fuels or by reducing consumption (Strand 2013). Climate change is yet another problem that may hinder future development in vulnerable countries through increasing loss and damages. In this respect, Mauritius is considered to be among the top 20 countries with the highest disaster risk for several years (Disaster Risk Reduction Network 2019). This is mainly because the country is one of the most exposed small islands developing state to natural hazards due to its geographical location in an active tropical cyclone basin facing an increase in sea level, higher instances of soil erosion and recurring occurrences of flash floods and major tropical cyclones. Given the seriousness of these problems, it is vital to address them with policy instruments that exploit in a cost-effective manner all the different behavioural responses throughout the economy that can help alleviate these issues. The advantage of policy instruments is that they force people to take environmental concerns into account and minimise the use and waste of energy and these may take the form of taxes. As such, environmentally related taxes, fees and charges increase the cost of polluting products or activities which may in turn discourage their consumption and production, regardless of whether this was the intended purpose of the tax or not (Jaffe 2020). In this regard, fiscal instruments are often the most effective policy while at the same time mobilising valuable government funds while reducing the burden on over-reliance on external finance flows (Parry 2018).

Consequently, the objectives of this research are to critically assess the various types of environmental taxes in Mauritius and to provide recommendations to enhance the existing framework on environmental taxation as a policy instrument to alleviate pollution and environment degradation in Mauritius. In particular, the carbon taxation, motor fuel taxes, vehicle ownership taxes, Maurice Ile Durable (MID) levy, plastic containers levy and environment protection fee among others will be analysed.

The methodologies for the research in essence include a critical legal analysis to assess the rules on environmental taxes in Mauritius. A comparative analysis will also be performed to find out the corresponding legal provisions relating to fiscal measures in the form of environmental taxes in South Africa. Since Mauritius is part of Africa, it becomes relevant to compare how one among the African continent’s most powerful economic powerhouses being South Africa, is dealing with environmental degradation and whether Mauritius may implement some of them. With the mushrooming of environmental tax systems globally, discussions on a global tax rate have also been on the radar of policy makers (OECD 2021). This emphasises the motivation to look into neighbouring countries as case studies so that more synergies can be brought forward.

At present, there is limited literature on the researched topic in developing countries and this study will be among the first academic writings on the environmental tax legislative framework in Mauritius. The study is carried out with the aim of synthesising empirical, theoretical and factual information that can be of use to various stakeholders and not only to academics. While the first part of this paper will introduce the concept of environmental taxes and the aims and objectives of the research, the following parts of this paper are structured as follows Part II will emphasise some existing studies on the efficiency of fiscal measures to protect the environment, Part III will analyse the various types of environmental taxes in Mauritius, Part IV will assess the corresponding environmental taxes in South Africa and Part V will provide recommendations for Mauritius to adopt. The final Part VI will conclude the paper.

2. Literature review

While the world is becoming more digitalised and modern, the environmental degradation as a result of climate change cannot be ignored. The unstable and unfavourable climatic conditions across the globe have been coded red by the latest IPCC report of 2021 (IPCC 2021) and ultimately the advocates of an eco-friendly environment often blame human beings for their responsibility in environmental problems. For instance, the race for profitability and material items has caused industries to widen their production structure into large scale production which has in turn led to higher energy consumption and release of CO₂ emissions. Consequently, it becomes imperative to seek for means and methods to compensate for the negative effects on the environment and to adjust the economic development structure in order to slow down the rapid pace of energy consumption (Pinglin et al. 2019).

Indeed, various methods have been considered to stop global warming and combat climate change ranging from sensitisation of people, promoting the use of renewable energy, encouraging the reduction of waste water among others (Denchak 2017). Yet, all of these methods take time to achieve the goal of diminishing environmental harms. Additionally, one cannot deny that these methods require financial resources and time for their implementation, maintenance and compliance and their net effect on production will take time to decipher. In this regard, one most rapid and efficient method to curb environmental damage arising from human activities is the imposition of fiscal measures (Lelieveld et al. 2019). Also, there is no funding problem with fiscal measures since the nature of taxation is such that people or companies are obliged to pay, which implies that environmental tax is an incentive for sustainable development having regard to consumption and the natural habitat at the same time (Beebeejaun 2018).

Basically, environmental taxes are defined by the Organisation for Economic Cooperation and Development (OECD 2020:1) as ‘those whose tax base consists of a physical unit (or similar) of some material that has a negative, verified and specific impact on the environment’. Consequently, some economists such as Blair (2019) and Casey (2018) map four subsets of environmental taxes, namely energy taxes, transport taxes, pollution taxes and resources taxes. Additionally, other activists of environmental protection such as the non-governmental organisation of Environmental Technology in the UK, believe that there are various forms of environmental tax, some of which penalise those who pollute while others reward those who adopt eco-friendly practices. As such, the UK Environmental Technology has introduced three main types of environmental taxes, namely industrial pollution taxes, individual revenue-based taxes and incentivised taxation. Industrial pollution taxes coerce with the imposition of taxes on harmful emissions such as taxes on carbon dioxide, nitrogen monoxide, nitrogen dioxide, sulphur dioxide, energy products like petrol, diesel, natural gas which generate CO₂ emissions. Also, as the name suggests, individual revenue-based taxes target private individuals and they aim to regulate behaviour and practices of human beings which can be harmful to the environment. For instance, some transport taxes can fall under this classification like congestion charges, fuel taxes and vehicle ownership taxes. In contrast to industrial pollution taxes and individual revenue-based taxes, incentivised taxation rewards people and industries for adopting eco-friendly practices that would protect the environment rather than imposing a charge on them. For example, it has become common practice in countries (Mauritius has followed suit) that those who resort to solar energy for their own consumption are given a subsidy to implement the photovoltaic apparatus. Nevertheless, this method will only work if people are sensitised on the importance of sustainable consumption and the positive effects of such practices take time to materialise (Charter 2019).

While Mauritius is in favour of environmental taxes, this part of the research paper seeks to discuss the reasoning behind the use of environmental taxes to curb environmental harms. As early as 1972, the ‘pay as you pollute’ principle started to be implemented by various OECD countries. In essence, an initial scrutiny of environmental degradation has raised eyebrows across the international community and thus required polluters to bear the cost of pollution and internalise the external cost (Pinglin et al. 2019). Thereafter, a more standard approach was adopted by OECD countries in the 1980s to impose taxes on pollution or products that damage the environment (OECD 2020). Afterwards, in an attempt to regulate people’s behaviour and sensitise the world, OECD countries implemented green tax reforms and used economic tools after 1990. These regimes have led to the creation of a sound environmental tax system in the mid-1990s with the result that almost all countries across the globe have implemented domestic laws on environment protection which includes the levy of environmental taxes (OECD 2020). Additionally, in the early twenty-first century, due to high awareness of the scarcity of environmental resources which are nearing completion, OECD countries have been working on the adoption of a comprehensive green tax system which couples fiscal measures along with some other incentives to eliminate or reduce the negative effects of climate change (OECD 2021). To this effect, various studies mentioned hereinafter have been conducted on the impact of taxes in reducing environmental degradation.

Regarding the efficiency of environmental taxes, Arbolino & Ramano (2014) conducted a study for evaluating the consequences of implementing environmental taxes in European countries. The results demonstrated the different impacts on European countries before and after the introduction of the related environmental taxes on the following three fronts: environment, employment and innovation. It was concluded that in general, these taxes have a positive effect on environment and innovation despite differences concerning the level of attention to the environment and the use of fiscal measures across European countries. Furthermore, Gonzalez & Ho (2018) surveyed the impact of an environmental fiscal reform in Spain. The reform consisted of a shift of the taxation system towards one that focuses on environmental taxation rather than taxing capital, labour or consumption. Thirty-nine industries emitting some serious pollutants were concerned. The authors simulated a rise in environmental taxes for these industries while reducing labour, capital and consumption taxes. It was found that following 3–4 years of the implementation of the reform, productivity has increased, hydrocarbon consumption has declined and the 31 pollutants showed a reduction in their uses in Spain. Along similar lines, Rodriguez et al. (2019) analysed the effect of a green tax reform that was suggested to be adopted in Portugal. The guidelines of the European Union were followed for the new tax regulation and the authors simulated the green tax reform to predict the most probable future outcome of the implementation of the green taxes. It was concluded that environmental taxes are able to bring about a reduction in energy dependence on exhaustive resources in Portugal and that it is possible to achieve a balance between trade and use of energy with the green taxes. Additionally, several researches have been conducted to assess the effectiveness of some specific environmentally related taxes. For instance, Convery et al. (2007) examined the impact of the levy on plastic bags in Ireland in 2002 and the results showed that people decreased their dependence on plastic bags by more than 90% and simultaneously, governmental revenues from the plastic bag levy have increased by 13 million euros annually. Another specific environmental tax is carbon tax. In this respect, Lin & Li (2011) assessed the effect of carbon taxes on per capital CO₂ emissions in some selected European countries. The results demonstrated that carbon taxes have significantly reduced CO₂ emissions in Finland but the findings were not significant for the Netherlands, Denmark and Sweden although a decrease in the use of motor vehicles was noted.

As a coin always has two sides, it is also noteworthy to discuss the research findings that do not corroborate with the argument that environmental taxes bring forth a reduction in dependency and consumption of scarce resources. For instance, Bruvoll & Larsen (2004) evaluated the impact of carbon taxes as a policy tool for reducing CO₂ emissions. They made use of general equilibrium simulations to analyse the change in CO₂ emissions with or without carbon taxes. It was found that the imposition of carbon taxes had an insignificant effect on carbon emissions and this result is due to the extensive tax exemptions and relatively inelastic demand in the transport sector. Similarly, Nerudova & Solilova (2016) assessed the effects of environmental taxes and government spending on environmental protection on CO₂ emissions in the Czech Republic. A time series data analysis was used on the various environmental policy instruments used in the Czech Republic for the period 1996–2012. The results showed that taxes do not have any significant effect on CO₂ emissions as opposed to government spending on environmental policies. The authors concluded that environmental taxation is used as a mere source of governmental revenues in the country and this does not impact on the use of carbon emissions products. Moreover, Pinglin et al. (2019) explored the relationship between environmental tax, GDP, unemployment, greenhouse gas emission, nitrogen oxide emission and sulphur oxide emission in some OECD countries. The findings demonstrated that environmental taxes reduce greenhouse gas emission, nitrogen oxide emission and sulphur oxide emission in the long run but there is also a positive relationship between environmental tax and unemployment rate in the long term.

Nevertheless, irrespective of the consequences of fiscal policies, the OECD (2020) suggests that environmental taxes should be targeted to the pollutant or polluting behaviour. This is because taxes leave consumers and businesses full flexibility to decide how to change their behaviour in order to reduce the harmful activity. For example, taxes on petrol and diesel increase the cost of driving a vehicle, which is an attempt to reduce emission and global warming as well as air pollution. Hence, it follows that taxes represent one of the tools to influence environmentally responsible behaviour to promote sustainable development (Hayrinen & Pynnonen 2020).

In the light of the above, it is noted that various studies conducted on assessing the impact of environmental taxes on various variables including GDP, carbon emission, sulphur dioxide emission, nitrogen oxide emission and greenhouse gas emission have differing results and findings. Despite the absence of a unified conclusion, countries around the world such as Mauritius have implemented or are implementing environmental fiscal measures with the view of reducing greenhouse gas emission in order to promote long-term sustainable development. The following part of the paper will focus on the adoption of environmental taxes in Mauritius.

3. Environmental taxes in Mauritius

Being aware of the positive effects of environmental taxes, the Mauritius government has been active in bringing forth green tax reform options since 2008. In particular, new policies have been formulated entailing the use of fiscal instruments to correct externalities such as taxes on carbon dioxide emission, fuel taxes, vehicle ownership taxes, the MID levy, plastic containers levy and environment protection fee. Nevertheless, the efficiency of these measures in reducing greenhouse gas emission has not been tested empirically before. However, the importance of environmental taxes in Mauritius in contributing to economic development in terms of productivity and governmental revenue, was highlighted by the OECD (2020) who found that these taxes account for 2.61% of GDP and 13.47% as a share of total tax revenue in 2018.

Primarily, to protect the environment from carbon emissions emanating from motor vehicles, a specific legal provision namely Section 3C of the Excise Act 1994 of Mauritius (Excise Act) was enacted in 2011 and amended subsequently in 2013. This particular section imposes a CO₂ levy on motor vehicles calculated on the CO₂ emission of grams per kilometre of a motor vehicle in accordance with a specific formula provided for in the Excise Act. This tax is payable at the time the motor vehicle is validated for use in the country as per the Mauritius Customs Act, is thus a one-off fee and is calculated as follows: $A=Rx(C\text{–}T)$where A is the amount of CO₂ levy, R is the appropriate rate of CO₂ levy per gramme per kilometre (Km), C is the CO₂ grammes per Km of the motor car, and T is the CO₂ threshold of 150 grammes per Km. It is to be noted that the value of R is a prescribed amount dependent on the motor vehicle’s CO₂ emission in grammes per Km.

Additionally, to determine precisely the amount of carbon emissions per gramme per Km, it is imperative for an importer of motor cars to submit to the Mauritius Revenue Authority (MRA) at the time of importation a CO₂ emission certificate of the relevant motor car. In the event that such a certificate is not available, the MRA will charge the CO₂ levy in the manner prescribed in Sub-Part D of Part III of First Schedule of the Excise Act.

Closely associated with transport energy is the fuel tax and in Mauritius, this tax forms part under the banner of the MID levy. The MID levy is a tax on fossil fuels established in July 2008 with the aim of financing clean energy projects, for example subsidising compact fluorescent lamps and solar water heaters (Parry 2018). According to Section 3A of the Excise Act, a MID levy is imposed on exercisable goods that are consumed by households and which are specified in the First Schedule of the Excise Act. Consequently, kerosene jet fuel, fuel oils other than marine residual fuel oil for bunkering, butanes used for filling cylinders not exceeding 12 Kg for domestic use, are each taxed at the specific duty of MUR 30 cents per litre when payment for their respective consumption is made. Furthermore, the Excise Act also makes it compulsory for the importer of petroleum products and liquid petroleum gas (LPG) to pay the MID levy within a period of 30 days of the date of importation of such products.

Along similar lines, another section of transport taxes comprises of vehicle ownership taxes which are made up of import excise duty, Value Added Tax (VAT) and registration duties. Basically, a flat VAT rate of 15% applies for any motor cycle and motor vehicle irrespective of the model, type or engine capacity whereas the rate of excise duty differs according to the respective engine’s capacity. This tax ranges from 0% if the engine capacity is below 550 c.c. and up to 100% if the relevant vehicle exceeds 2,000 c.c. For new vehicles, the tax is levied on the value of the vehicles at the time of import. As for second hand vehicles, the respective rate is levied on the value of secondhand vehicles computed based on the free on-board value of previously imported identical vehicles reduced by 9% for the first month of use and 1% for each subsequent month up to a maximum of 50% (MRA 2020). Moreover, as per Section 3 of the Registration Duty Act 1804 of Mauritius, a duty is levied on the registration of a vehicle in Mauritius. This is a one-off fee and the amount varies according to engine capacity of the vehicle. This tax is remitted to the Registrar General of Mauritius which acts as a tax collector and then submits the money to the MRA.

Coupled with vehicle ownership taxes is the road tax also commonly known as ‘declaration’ in Mauritius. This tax is imposed on owners of vehicles in the country in order to renew the authorisation to drive the vehicle in Mauritius. It is imposed under the Road Traffic Act 1962 of Mauritius and as per Section 29 of the Act, the amount of road tax payable is set out in the First Schedule of the Act and depends on the engine capacity and the registered purpose of the relevant vehicle. There is also an option to pay the road tax either quarterly, half-yearly or annually. This tax is collected by the National Transport Authority which acts as a tax collector and then submits the money to the MRA.

Another culprit of environmental degradation is the phenomenal usage of plastic bags. For instance, it is proved that plastic bags often block drainage passages and gutters, may suffocate farm animals and marine resources and pollute the air and soil during their breaking down stage (PMO Office 2021). Statistics demonstrate that 8 million tonnes of plastic are littered in the ocean annually, use of plastic leads to the death of 1 million seabirds and 100,000 marine mammals per year and causes harm to the marine ecosystems accounting for USD 8 billion annually (Government Information Service 2018). To this end, the government of Mauritius has amended the Environment Protection (Banning of Plastic Bags) Regulations 2015 to restrict the import, manufacture and supply of plastic bags as from 1 January 2016. More precisely, the types of plastic bags concerned in this Regulations refer to vest-type, roll-on and non-woven polypropylene bags which are supplied at various points of sale. As in law there are always exceptions, the Regulations have exempted 11 categories of plastic bags for basic and essential uses and for hygienic and sanitary purposes such as to carry frozen foods or to dispose of waste among others. However, the manufacture, import and usage of biodegradable and compostable plastic bags is still permitted subject to meeting the specific exigences of the Regulations such as obtaining a clearance from the Director of Environment and submitting a certificate of conformity to the appropriate standard issued by the Mauritius Standards Bureau. Moreover, some other plastic products have also been noted as causing severe harm to the environment and accordingly, an excise duty of MUR 2 per unit is imposed on all locally and imported non-biodegradable plastic bowls, cups, plates and trays from the year 2019.

In addition to the above, being conscious of the fact that various activities carried out and being consumed in Mauritius may harm the environment and natural habitat, the government has provided for the payment of an environment protection fee in the year 2008 under Section 66 of the Environmental Protection Act 2002 of Mauritius. Accordingly, this tax is levied on any ‘designated establishment’ and on some importers of specific goods that are prescribed in the Environmental Protection Act. A ‘designated establishment’ which includes a hotel, guest house, enterprise engaged in stone crushing, concrete blocks manufacture, handling coral sand, rock sand or basalt sand, manufacture of mobile phones and batteries and pneumatic tyres. The amount is levied as either a percentage of monthly turnover or as a fixed price per unit and is payable within 20 days after the end of every month. Furthermore, the importers of mobile phones with a value exceeding MUR 1000, vehicle batteries and pneumatic tyres have to pay the environment protection fee at a prescribed price per unit. In order to assess the efficiency of the above-mentioned environment taxes in Mauritius, it is imperative to analyse the corresponding taxes in other countries and the country selected for the comparison is South Africa which the following section of this paper will address.

4. Environmental taxes in South Africa

South Africa is selected for the comparative study under this paper primarily because one has to compare like with like and since Mauritius forms part of Africa, it is relevant to assess how another sub-Saharan African country is dealing with environmental degradation issues from a tax perspective. In this respect, in order to keep pace with international standards, the South African government has brought forth six main types of environmental taxes namely, plastic bag levy, electricity generation levy, electric filament lamps levy, motor vehicle carbon emission tax, carbon tax and tyre levy. Furthermore, as a green tax policy measure, the country offers capital allowances for using renewable energy assets.

Indeed, South Africa has been successful in increasing its revenue base from environmental taxes and this is evidenced by the OECD report which confirmed that the country ranks 18th among 34 OECD countries having environmental taxes accounting for a high share of GDP (OECD 2015). According to this OECD report, environmental taxes in South Africa form part of 2.14% of its GDP in 2014 as compared to 2% on average for the other countries. Among the popular taxes is the plastic bag levy which accounted for tax revenue of 300 million South African Rands during the tax year 2018/2019 (SARS 2019). The purpose behind the imposition of this tax is to reduce consumption of plastic bags due to their negative impacts on the environment and to thereafter promote the use of biodegradable bags which have proved to be the most appropriate substitute for plastic bags in terms of usage and recycling. This levy was first introduced in 2004 and the tax rate has increased from 3 cents per bag in that year to 25 cents per bag in 2020. It is to be noted that the legal source of plastic bag levy stems from the South Africa Customs and Excise Act 1964 (SA Customs and Excise Act) and Schedule 1 (Part 3A) of the said Act distinguishes between the different types of bags upon which the levy is charged such as bags made up of polymers of ethylene or thermoplastic materials with a certain thickness. Nevertheless, all of them are charged at the fixed rate of 25 cents per bag.

Often accused of causing pollution is the generation of electricity through the use of non-renewable fossil fuels or other nuclear sources which harm the environment. To this end, South Africa has introduced a tax known as the electricity generation levy in the year 2009 at the rate of 2 cents in a Rands per Kilowatt-hour for electricity generated in the country. This levy was increased to 3.5 cents in a Rands per Kilowatt-hour in 2012 and statistics suggest that the revenue obtained from this levy benefits the government budget since 8.4 billion Rands was received from this tax in 2018/2019 (SARS 2019). Additionally, closely linked to electricity tax is the imposition of environmental levy on electrical filament lamps. This tax is levied on non-energy-saving light bulbs which are manufactured in South Africa itself and the types of bulbs affected by this levy are set out in Schedule 1 (Part 3C) of the SA Customs and Excise Act. This tax was introduced in 2009 at the rate of 3 Rands per bulb and as of 2020, a levy of 10 Rands per lamp is imposed on the relevant non-energy saving light bulb accordingly. Evidence shows that the government has generated 41 million Rands in 2018/2019 from this particular environmental levy (SARS 2019).

Regarding carbon taxes in South Africa, two main levies are concerned, namely environmental levy on CO₂ emissions of motor vehicles and levy on carbon emission resulting from specific prescribed activities. Given the large number of motor vehicles circulating on the roads of South Africa, the aim of the CO₂ emissions levy on motor vehicles is to promote the use of sustainable energy and environmentally friendly motor vehicles. This tax is imposed on the amount of CO₂ emissions per Km driven and more precisely at a specific rate above 120 g CO₂ per Km driven. The CO₂ emissions levy was introduced in 2010 at the rate of 75 Rands and has substantially increased over the years to arrive at present at 120 Rands in 2020. The rate differs for double-cab vehicles since an amount of 160 Rands is imposed per gram of Km CO₂ emissions exceeding 175 g per Km. SARS (2019) mentions in its statistical report that this levy has brought 1.39 billion Rands to the South African government for the period 2018/2019. Moreover, the other section of carbon taxes comprises environmental levy on carbon emission which arises from fuel combustion, fugitive and industrial processes. The applicable rate is 127 Rands per tonne of CO₂ emissions.

Additionally, there exists the fuel levy in South Africa which is also known as the general fuel levy and is payable by manufacturers of petroleum products in the country. The products concerned by the manufacturers comprise of petrol, diesel, kerosene and biodiesel. In 2020, the fuel levy on petroleum products is 3.77 Rands per litre while for the other resources, they are charged at 3.63 Rands per litre.

Finally, South Africa has introduced an environmental levy on tyres in 2017. Indeed, motor vehicles tyres are known to cause severe harm to the environment due their inherent composition of natural rubber and synthetic rubber which is a plastic polymer. It is proved that as tyres roll away, they throw micro plastic substances which go into the roads and eventually to the oceans (Root 2019). Undeniably, these substances pollute the sea and block water drainage. Unfortunately, there is no substitute for pneumatic tyres but the reuse, treatment and recycling of this product may be encouraged rather than simply disposing of these tyres. Consequently, in an attempt to reduce waste of pneumatic tyres, South Africa has introduced a specific levy payable by the manufacturers which is imposed on the net mass of the tyre. At present, the rate of environmental levy is 2.30 Rands per Kg net mass of the tyre.

As a supplementary measure to environmental taxes, South Africa has complemented its green environmental policy measures by implementing a system of capital allowances and tax deductions in order to encourage the consumption of renewable energy and adopt eco-friendly habits. In particular, Section 12B of South Africa Income Tax Act, Act 58 of 1962 (SA Income Tax Act) empowers taxpayers who own renewable energy assets to provide for an accelerated depreciation allowance for plant, machinery, utensils and articles used in the production of renewable energy in the course of one’s trade (Brink 2019). For example, if the renewable energy generated plant and machinery is of a lifetime of 20 years, the aforementioned Section 12B enables the owner to claim for the cost of depreciation of that plant and machinery as a capital allowance for a period of, say, one to three years. This reduces taxation cost and the money saved may then be invested in some other environmentally friendly products. However, this particular legal section concerns only some prescribed sources of renewable energy, namely wind power, photovoltaic and concentrated solar energy, hydropower for electricity generation of less than 30 Megawatts and biomass constituting organic waste disposal or plant. Also, tax deductions may also be sought for any update or improvement carried out on the respective plant and machinery which is the source of renewable energy generated during its expected life.

Furthermore, another incentive in the form of individual tax allowance exists for an individual taxpayer. This is provided for by Section 12D of the SA Income Tax Act which enables a taxpayer to claim for an allowance on the cost of purchase of any new or unused ‘affected asset’. An ‘affected asset’ is defined as any line or cable used for the transmission of electricity and any supporting structures of such line or cable. However, the allowance is approved on condition that the taxpayer owns the ‘affected asset’ and the asset is directly used for electricity generation.

Another type of tax deduction refers to the energy-efficiency savings allowance provided for under Section 12L of the SA Income Tax Act. In fact, taxpayers who are registered with the South African National Energy Development Institute are entitled to claim a deduction for any savings derived from using environmentally friendly products in the course of trade. The aim behind the enactment of this legal provision is to reduce the level of CO₂ emissions by shifting the over-reliance on fossil fuel energy generation and to thereby concentrate on some more eco-friendly energy generation sources. Along the same lines, in order to encourage the use of energy savings plant and machinery, Section 12N of the SA Income Tax Act enables a lessee to deduct from the taxable income any improvements made to another person’s land or property in the form of depreciation if these improvements are approved by the Independent Power Procurement Programme administered by the Department of Energy.

Usually, expenditures which are of a capital nature are not tax deductible. Nevertheless, to promote investment in renewable energy projects, Section 12U of the SA Income Tax Act was enacted in 2016. Indeed, renewable energy projects require capital expenditure in wind farms, solar farms and the appropriate infrastructure such as land, roads, fences among others. Hence, the aim behind the enactment of Section 12U of the SA Income Tax Act is to enable the acquisition cost of such expenditure to be tax deductible with the view of making large scale renewable energy projects more attractive.

5. Comparative study and recommendations

Following a thorough analysis of the related laws pertaining to environmental taxes in both Mauritius and South Africa, the following main distinctions have been noted and highlighted in Table 1 below.

Table 1. Comparative Analysis between Environmental Taxes of Mauritius and South Africa.

Details	Mauritius	South Africa
Tax on Carbon Emission	CO2 levy on motor vehicles and MID Levy on households	CO2 levy on motor vehicles
Tax on Plastic Bags	Excise duty of MUR 2 per unit of non-biodegradable plastic products	Levy of 25 cents Rands (MUR 8) per plastic bag
Environmental levy on tyres	Fixed rate of MUR 50 per tyre	2.30 Rands per Kg net mass of the tyre
Electrical filament lamps levy	Not Applicable	Levy of 10 Rands per lamp
Capital Allowance on renewable sources of energy mechanisms	Applicable for individuals and not corporates	Applicable for both individuals and corporates

As mentioned in Table 1 above, likewise the imposition of CO₂ levy on motor vehicles in Mauritius, South Africa has also implemented a carbon emission taxation system on motor vehicles manufactured in the country itself. For both countries, the levy is imposed on the CO₂ emission grammes per kilometre of a motor vehicle in accordance with a specific formula provided for in the respective Excise Act with the only exception that in Mauritius, any vehicle emitting CO₂ emission grammes per kilometre of less than 150 g is exempt while in South Africa, the threshold is 120 g. However, at present, there is no tax on carbon emission emanating from fuel combustion, fugitive and industrial processes in Mauritius. This is because the country does not possess the related resources but importers of petroleum products and LPG have to pay the MID levy on such products to the MRA. Corresponding to the MID levy, South Africa has also imposed the fuel levy on manufacturers of petrol, diesel, kerosene and biodiesel. In addition, some households in Mauritius also have to pay the MID levy on certain prescribed goods upon their consumption such as fuel oils, kerosene, butanes at the rate of MUR 30 cents per litre. Novel economic models are proposing high initial tax rates followed by annual increases to the marginal rates of damage as compensation to the external costs (Lontzek et al. 2015; Williams & Gordon 2015).

With respect to fiscal measures on plastic bags, Mauritius has banned the use of plastic bags but some exceptions have been allowed in the related regulations for using these bags for some prescribed purposes. Also, an excise duty of MUR 2 per unit of non-biodegradable plastic products such as bowls, cups, plates and trays is imposed from 2019 in the country. In contrast, South Africa has imposed a levy of 25 cents Rands (MUR 8) per plastic bag and this has helped to generate huge amounts of tax revenue for the government but the impact on plastic bags consumption from this tax still remains undeciphered.

Regarding environmental levy on tyres, Mauritius requires the importers of pneumatic tyres to pay an environment protection fee as a prescribed price per unit and currently, the rate is fixed at MUR 50 per tyre. In contrast, South Africa imposes the corresponding levy on manufacturers of pneumatic tyres on the net mass of the tyre. At present, the rate is 2.30 Rands per Kg net mass of the tyre.

In comparison to the electricity generation levy and electrical filament lamps levy, Mauritius does not have any corresponding tax. While these taxes have enabled South Africa to generate huge amount of revenues and to encourage the use of energy savings bulbs, it is hereby suggested that Mauritius follows suit by first imposing a levy on generators of electricity which make use of non-renewable fossil fuels at a specific charge per Kilowatt-hour for electricity produced. Secondly, it is imperative to impose a levy on non-energy-saving light bulbs to discourage their consumption since there are now substitutes available for these products. The Internality Targeting Principle by Gauthier & Henriet (2019) can be adopted in order to ensure that the burden of energy taxes falls on the heaviest polluters rather than households in Mauritius. Adoption of energy tax alone can widen the inequality gap among households, thus the distributional effect should be properly appraised before being rolled out. Introduction of such a levy shall also differ by the goal settings as highlighted by Li & Lin (2013) which can be either absolute-emission-reduction goals (massed-based goals or absolute-volume-based goals) or intensity-based emission goals (rate-based goals). The authors found significant difference in the diverse goal setting approaches.

Additionally, South Africa has an advanced and developed system of capital allowances on the use of energy savings resources, which Mauritius may adopt. At present, only individuals who invest in solar energy units are entitled under Sections 24 and 27C of the Mauritius Income Tax Act to deduct the cost of capital expenditure by way of annual allowance in that income year and in each of the succeeding years at such rate as may be prescribed. In fact, a solar energy unit is defined as a solar photovoltaic system and includes a solar inverter, battery for storage of electricity and solar charge controller. Nevertheless, this legal provision applies only for individuals and trusts and not to corporate bodies which can only claim tax deductions if it can be demonstrated that the expenditure is exclusively incurred in the production of gross income. It is therefore recommended that this tax rebate also extends to corporate bodies which make use of huge amounts of electricity for their business activities out of fossil fuels or other non-renewable energy sources. Consequently, the latter will be encouraged to invest in solar energy units which will contribute towards a safer green environment and be aligned in meeting the renewable energy target of the government. A study by Surroop & Raghoo (2017) mapped the energy landscape in Mauritius and highlighted that only one company was the producer of solar energy. While the government is currently providing subsidies to households and prosumers to install solar photovoltaic systems, it is not deterrent enough to divest from fossil fuel. The subsidy and feed-in tariff system should be paired with a levy on fossil fuel energy.

Furthermore, like the case for South Africa, it will be a good initiative if the Mauritius Income Tax Act can be amended to provide for capital allowances when owning and using renewable energy assets such as plant and machinery. It is also suggested that the legal provision allows for the possibility of an accelerated depreciation of the respective plant and machinery such that the tax money saved may be re-invested in some new energy savings project. However, to prevent abuse from corporate bodies and tax avoidance, it is imperative that the legal amendment clearly mentions the types of plant and machinery and their relevant purposes that will benefit from the accelerated depreciation provision. Along similar lines, it is also advisable that Mauritius implements Section 12N of the SA Income Tax Act in its tax laws by enabling a lessee to claim allowable deductions over any improvements made to another person’s land or property if these changes are in line with energy savings policies and are approved by a special body under the aegis of the Minister of Environment.

Lastly, at present, there is no tax-deductible provision available for large scale renewable energy projects. In this context, it is recommended that Mauritius implements Section 12U of the SA Income Tax Act in its tax laws to encourage investment in wind farms and the related cost of fencing, roads, lands among others. This capital allowance will entitle individuals and corporates to claim tax deductions over the cost of acquisition in the form of depreciation or accelerated depreciation as the case may be.

Alongside the above-mentioned recommendations, while taxation is one of the methods of changing social practices as mentioned by (Hayrinen & Pynnonen 2020), it is still imperative to influence environmental social behaviour by changing people’s mindset through education and sensitisation campaigns with the view of promoting the use of natural resources, decreasing the dependency on non-renewable energies and facilitating the sustainable use of renewable resources.

6. Conclusion

Mauritius is considered to be a vulnerable country when it comes to the negative impacts of climate change. Hence, various policies are being devised in the country with the view of promoting sustainable development and to reduce the adverse effects of environmental degradation. This research paper focuses on the efficiency of environmental taxes in Mauritius. In particular, environmental levies on carbon emissions, motor fuel, vehicle ownership, plastic containers as well as the environment protection fee and the MID levy, have each been elaborated and discussed thoroughly. This article has adopted the comparative analysis to crucially assess environmental taxes in Mauritius against the corresponding legal provisions in South Africa. It is noted that there are some recommendations which Mauritius may inspire from South Africa such as the adoption of environmental levy on non-energy light savings bulbs or generators of electricity that uses non-renewable energy resources such as fossil fuels to produce electricity. Additionally, this article suggests that Mauritius stakeholders reconsider the system of capital allowances and tax deductions by allowing for corporate bodies to claim capital allowance on the cost of acquisition of solar energy units since at present, only individuals and trusts are entitled to claim such allowances. Moreover, the Mauritius Income Tax Act needs to be amended in order to allow for capital allowances when owning and using renewable energy plant and machinery or when a lessee makes amendments to another person’s property that are in line with energy savings policies and approved by the Minister of Environment. Also, while Mauritius has given consideration to solar energy units, it is time for the stakeholders concerned to devote resources towards some other large-scale renewable energy projects such as wind farms. Likewise, in the case of South Africa, the authors recommend a system of capital allowances on the cost of acquisition of wind farms materials including wind turbines, fencing, roads, lands among others. In summary, it is imperative to note that although environmental taxes have a painstaking effect, they must be seen as complementary measures to other corrective and preventive actions such as capital allowances, voluntary agreements, education and sensitisation campaigns with the view of changing social behaviour to promote sustainable development.

Disclosure statement

No potential conflict of interest was reported by the author(s).