5. Analysis of Incidence Through E-SAM

The question related to the levy of ecotaxes has been examined empirically in this chapter along with the most desired discussion on incidence, i.e. who ultimately pays the tax? The progressivity of the ecotaxes has been examined using the framework of E-SAM on five rural and four urban household categories which have been classified based on their occupational structure. This analysis is attempted to address research gaps in the literature which pointed out that the studies did not examine the effect of such a tax by incorporating all the three environmental components. A price vector model has been used to model the incidence of ecotax on households. Here ecotaxes have been modelled on the value of outputs of the five most polluting sectors in India; thermal (NHY-Non-Hydro), fertilisers (FER), iron and steel and non-ferrous basic metals (MET), paper and paper products (PAP) and textile and leather (TEX). Such an ecotax could be categorised under output tax. An important outcome of this exercise was that the ecotaxes were found to be overall progressive in both rural and urban household classes for both 5 and 10% tax rates. However, in the case of rural household categories, the tax was found to be mildly regressive for the household class of Rural Agricultural Self-Employed (RASE). Revenue generated from this levy could be utilised for making the tax progressive, and it was found that to make this tax progressive for the household class RASE, it is necessary to transfer revenue in the range of meagre 2–10% of the total revenue that has been generated from the levy of this tax.