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Zulfiya Laipanova et al. RT&A, Special Issue № 6 (81), Part-3, TAX POLICY AS A TOOL FOR STIMULATING..._Volume 19, December 2024
TAX POLICY AS A TOOL FOR STIMULATING SUSTAINABLE DEVELOPMENT: INTERNATIONAL AND
RUSSIAN EXPERIENCE
Zulfiya Laipanova1, Satsita Khasanova2, Islam Delaev3
1North Caucasus State Academy, RUSSIA 2Kadyrov Chechen State University, RUSSIA 3Grozny State Oil Technical University, RUSSIA [email protected]
Abstract
This paper delves into the utilization of tax policy as a strategic tool for promoting sustainable development, comparing international practices with the Russian experience. Tax policy, when aligned with sustainability objectives, can drive economic growth, foster social equity, and protect the environment. The paper reviews various tax instruments such as carbon pricing, eco-taxes, incentives for renewable energy investments, and tax benefits for sustainable business practices, focusing on how they have been implemented globally and in Russia. Special attention is given to policies that address environmental externalities and encourage the transition to a low-carbon economy. In the case of Russia, the paper assesses the effectiveness of recent tax reforms aimed at fostering sustainable development, including energy efficiency incentives and efforts to diversify government revenues beyond fossil fuels. By examining successes, limitations, and lessons learned from both international and Russian contexts, the paper provides actionable recommendations to strengthen the role of tax policy in advancing sustainable development.
Keywords: tax policy, sustainable development, carbon pricing, environmental levies, renewable energy incentives, green fiscal reform, climate change mitigation, sustainable economic growth, eco-taxes, low-carbon economy
I. Introduction
The modern world faces a number of global challenges related to the need to ensure sustainable development (Fig.1). The concept of sustainable development includes three interrelated aspects: economic growth, social well-being and environmental safety. In the context of these tasks, tax policy becomes an important tool for achieving sustainable development goals. Properly designed tax mechanisms can not only promote economic growth, but also stimulate responsible use of natural resources and reduce negative impacts on the environment.
Many countries are already actively using tax instruments to promote environmental initiatives and support the transition to a low-carbon economy. Carbon taxes, environmental charges and tax incentives for "green" technologies are just a few examples of successful measures applied at the international level. Russia is also taking steps in this direction, introducing tax reforms aimed at reducing dependence on hydrocarbons and supporting innovative environmentally friendly technologies.
Introducing elements of sustainable development into tax policy is a complex process that requires taking into account the specifics of national economies and adapting to international trends. This article analyses international experience in using tax policy to stimulate sustainable
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development and examines how Russia is adapting these approaches to address its own environmental and economic challenges.
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Figure 1: Sustainable Development Solutions Network
The International Spillover Index is a metric designed to evaluate how a country's actions affect the ability of other nations to achieve the Sustainable Development Goals (SDGs). This index quantifies the international ripple effects resulting from a country's policies and practices, providing valuable insights into their broader implications.
The index considers three main dimensions of these spillover effects:
1. Environmental and Social Impacts: This dimension examines the environmental and social repercussions associated with trade practices, such as pollution resulting from production activities intended for export. It highlights how a country's production methods can affect ecological sustainability and social well-being in other regions.
2. Economic and Financial Spillovers: This aspect assesses how economic policies and financial events in one country can lead to spillover effects that impact neighboring or distant nations. For instance, financial crises can spread across borders, leading to economic instability and adverse effects on development efforts elsewhere.
3. Security Spillovers: This dimension analyzes how instability or conflict in one country can affect the security and stability of other nations. It underscores the interconnectedness of global security, where challenges in one region can lead to increased risks and challenges in another.
By measuring these dimensions, the International Spillover Index provides a comprehensive overview of the ways in which countries' actions can support or hinder the achievement of global sustainable development objectives.
II. Methods
A comprehensive methodological approach, including qualitative and quantitative research methods, was used to analyze the role of tax policy in stimulating sustainable development.
1. Comparative analysis: The main method used was a comparative analysis of tax practices in various countries aimed at supporting sustainable development. The study covers the experience of both developed and developing countries, including Russia, the European Union, the United States, China and a number of other countries. The comparison includes a study of carbon taxes, environmental charges and incentives for the introduction of renewable energy sources.
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2. Analysis of the regulatory framework: A study of existing laws and regulations in Russia and abroad related to environmental and tax policy was conducted. This allowed us to identify the key tax instruments used to stimulate environmentally friendly technologies, energy efficiency and reduce the carbon footprint.
3. Econometric analysis: Econometric modeling methods were used to quantitatively assess the impact of tax instruments on sustainable development. The study examined GDP, carbon emissions, energy efficiency and green investment indicators in countries with different tax regimes. This made it possible to identify correlations between tax measures and improvements in environmental and economic indicators.
4. Case studies: Specific examples of successful application of tax policy to promote sustainable development were analyzed. Cases from Russia and other countries were considered to identify key success factors and obstacles in the implementation of "green" tax reforms.
5. Expert interviews: To obtain practical data on the application of tax policy in the context of sustainable development, interviews were conducted with Russian and international experts in the field of ecology, tax law and economic development. This helped to complement the theoretical analysis with real examples and forecasts for the further development of tax policy.
Thus, the use of several research methods provides a comprehensive analysis of the role of tax policy in achieving sustainable development goals, taking into account both international and Russian experience.
III. Results
Environmental sustainability is another key area where taxation can have a significant impact. Environmental taxes, such as carbon taxes, aim to incorporate external environmental costs associated with environmental degradation into the price of goods and services. By imposing taxes on environmentally damaging activities, such as fossil fuel use or industrial pollution, governments can discourage environmentally harmful practices and encourage the use of cleaner technologies. For example, carbon taxes create an economic incentive for companies and individuals to reduce their carbon emissions, thereby helping to mitigate climate change. Revenues from environmental taxes can be used to support sustainable projects, such as renewable energy, energy efficiency, and environmental programs, thereby amplifying the impact of environmental initiatives. In addition, tax policy can play an important role in shaping corporate behavior and encouraging sustainable business practices. Through tax incentives and subsidies, governments can encourage companies to invest in sustainable technologies, adopt clean production methods, and stimulate innovation for sustainable development. For example, tax incentives for research and development in renewable energy can encourage innovation in this sector by making clean energy more affordable. Similarly, tax incentives for companies that meet environmental or social standards can motivate greater corporate responsibility and sustainability.
International tax cooperation also plays a critical role in promoting sustainable development, particularly in combating tax evasion. The globalization of the economy has made it easier for multinational corporations and wealthy individuals to shift profits and assets to countries with low tax rates, eroding the tax bases of countries, especially developing countries. International initiatives such as the OECD-led BEPS (Base Erosion and Profit Shifting) project aim to address these problems by increasing transparency and ensuring that taxes are paid in the countries where the real economic activity takes place. Combating tax evasion helps protect the revenue needed to achieve sustainable development goals.
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IV. Discussion
The underlying cause of many development issues in the Far East, and in Russia more broadly, is the lag in research and development (R&D) progress. This problem is well-known, and a widely adopted solution in numerous countries is the introduction of specific tax incentives to stimulate growth. In this context, a key strategy would be to enhance tax benefits for residents of special economic zones (SEZs), which act as small but dynamic "growth hubs" in the Far East. These hubs can foster the creation of new technologies that, once disseminated throughout the region, could significantly improve overall development metrics.
Studies by Zhang et al. [8], Gasmi et al. [9], and Yuan et al. indicate that well-targeted tax incentives lead to a more efficient use of existing infrastructure, human resources, and other critical assets.
^ Production output ^KjeventiLS of the budget — Lmissions into thi? atmosphere
Figure 2: Inertial scenario. Indicators characterizing the dynamics of the region's economic-technological and socio-
ecological subsystems
Currently, the SEZs operating in the region offer a variety of tax benefits and incentives aimed at attracting businesses. These include reduced corporate income tax rates, lower social insurance contributions, and reduced land tax rates. Such measures help improve business profitability, often measured by return on equity (ROE), which is undoubtedly a crucial factor for enterprises. However, profitability alone is not sufficient, especially given the region's prolonged economic challenges and the relatively weak innovation drive within the private sector. To address these issues, it would be prudent to introduce tax incentives that are tied to reciprocal commitments from businesses, particularly in the areas of innovation and capital investment.
This approach would involve structuring tax incentives around contractual obligations. A prime example could be the implementation of an Investment Tax Credit (ITC), allowing
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businesses to offset their tax liabilities. A similar mechanism is successfully employed in Italy, where companies are offered a generous 12% tax credit on qualified R&D expenditures, which can be used to reduce any type of tax obligations. Such a policy could serve as a model for fostering innovation and investment in the Far East's SEZs.
The effectiveness of taxation in promoting sustainable development is closely tied to the efficiency and fairness of tax administration. A fair and transparent tax system that minimizes evasion and ensures compliance is crucial for building public trust and making tax revenues available for development purposes. Efficient tax administration reduces the costs of tax collection and increases the revenues available for public investment. Fairness in tax administration ensures an equitable distribution of the tax burden, preventing undue hardship for low-income individuals and avoiding the concentration of wealth.
In conclusion, taxation serves as a fundamental tool for achieving sustainable development. It provides the necessary revenues for public investments in critical sectors, facilitates income redistribution to reduce inequality, and encourages environmentally sustainable practices. An effective tax policy can stimulate economic growth, promote social integration, and protect the environment by aligning national development strategies with global sustainable development goals. The role of taxation extends beyond revenue generation; it encompasses the facilitation of equitable economic growth, environmental protection, and social welfare. Therefore, the development and implementation of tax policies must continuously adapt to the evolving challenges and opportunities of sustainable development. Through progressive, efficient, and fair tax systems, governments can harness the power of taxation to build a more sustainable and equitable future for all.
Tax incentives encompass various aspects related to green technologies, and their analysis can be instrumental in defining the trajectory for transforming tax instruments that stimulate investment in these technologies. Many countries have established tax incentives to encourage investors. In the United States, such incentives are provided through tax exemptions and accelerated depreciation for corporate profits. Tax benefits are also available for specific business activities, including green investments, based on the Opportunity Zones legislation, which has been in effect since 2017. The aim of reducing the tax burden is to motivate ESG investing across various sectors, emphasizing the importance of capital allocation that considers environmental protection, social development, and corporate governance.
To control environmental pollution and ensure the safe handling of solid waste and the recycling of valuable materials, the Pollution Control Tax-Exempt Bond Financing Program has been established. This program allows borrowers to lower the cost of financing clean technologies through reduced interest rates compared to conventional loans. Green bonds for environmental projects that meet climate investment standards are actively issued by the California Pollution Control Financing Authority (CPCFA). Eligible projects for tax-exempt bond financing include the creation and reconstruction of wastewater treatment facilities, waste-to-energy conversions, waste disposal, and landfill reclamation. The effectiveness of tax incentives in the U.S. is evidenced by the increase in reported and supported projects. For instance, the list of projects receiving financial assistance and tax benefits includes initiatives for purchasing clean vehicles for waste management companies and recycling used oil, as well as construction debris disposal projects. Some of these incentivized projects can be implemented by small businesses and supported at the municipal level, thus stimulating local economic development. Overall, U.S. tax incentives have resulted in investments in green projects averaging up to $15 billion per year, positioning the country as a leader in green technology.
In Malaysia, a comprehensive set of green tax incentives is available for industrial enterprises and investors. Funding for clean technologies is facilitated through the Green Technology Financing Scheme (GTFS 3.0), which was launched as part of the Sustainable and Responsible
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Investment (SRI) support program aimed at promoting the adoption of green technologies. This scheme enables the incorporation of green technology elements into investment projects while reducing the tax burden. It includes tax incentives for electric vehicles, profit tax exemptions, and the Green Income Tax Exemption (GITE), as well as the Green Investment Tax Allowance (GITA).
Conversely, the current taxation framework in Russia does not include specific provisions for modifying elements related to green technology, such as tax bases, exemptions, or rates. The concept of green technologies is not explicitly defined in Russian regulatory documents. Traditionally, green technologies are associated with those that do not harm the environment or, when utilized, cause minimal ecological damage.
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