Designing ecotaxes requires an understanding of the intertwining relations between sectoral activities that generate pollution in the environment. An attempt is undertaken in this chapter to holistically construct an E-SAM for India. Using the methodology of E-SAM in such context is unique, and this is substantial improvement on the only existing E-SAM for India of Pal et al. (2015) by including significant environmental components, i.e. water and land so as to analyse their interactions with other sectors of the economy. Apart from a comprehensive dataset for designing ecotaxes, an attempt has also been made to arrive at potential tax bases and a theoretical deduction for the optimal rates of these taxes, thereby addressing the design issues related to these taxes. The E-SAM has 33 core sectors of the Indian economy along with three categories of labourers, namely unskilled, semi-skilled and skilled. Further, the E-SAM also has five categories of rural and four categories of urban households, and there are three environmental categories of air, water and land. The five foremost polluting sectors or tax bases were identified using the pollution coefficients from the E-SAM, and these are 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). Here, for the very first time, an attempt is made to construct theoretical scaffolding for arriving at optimal rates for ecotaxes which underscored the idea of redundancy of arriving at specific numbers of tax rates as these numbers are most desired ideal scenarios. Environmental taxes can be easily subsumed under the framework of the GST by providing a separate tax slabs for these taxes with the provision of using the proceeds from these taxes for revenue transfers and earmarking the revenue for environmental purposes.
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This principle of a SAM could be simply remembered by concentrating on the English alphabet followed by C (representing column of the SAM) which is ‘D’, and therefore, the column represents demand. Similarly, alphabet after R (representing row of the SAM) is ‘S’ which implies supply.
The order of the matrices written in the subscript depicts the rows and columns of the E-SAM 2007–08 which have been constructed with 33 sectors of production and seven environmental sectors. For details, please refer to Appendix F
Even though this compensation period of five years will come to an end in 2022, but the issue lies with the irrational approach of the government which could even have implications for any further environmental levies in India.