Reforming Indirect Taxes in India: Role of Environmental Taxes

Extensive reforms of India’s indirect taxes at the central and the state levels has prepared the necessary ground for the implementation of a comprehensive goods and services tax (GST). The Empowered Committee of the State Finance Ministers in their First Discussion Paper and the Thirteenth Finance Commission in their recently submitted report have suggested GST models which are quite different in many respects. This paper identifies these differences and argues that within the regime of taxation of goods and services in India environmental tax reform should also be incorporated to make the tax regime play a significant role in managing environment. The environment tax reforms will yield both a fiscal double dividend and an economic double dividend making the Indian economy pursue a path of sustainable development.