Tackling climate change from Malaysian perspective

Posted on October 19, 2010. Filed under: Environmental Economics |

Read more: Tackling climate change from Malaysian perspective http://www.btimes.com.my/articles/prebud11/Article/#ixzz12lrrUIrI

THE relentless global pursuit of development and economic growth has been achieved, at least in part, at the expense of permanent damage to the environment, particularly in terms of the emission of greenhouse gases and consequential global warming.

During the UN Climate Change Conference in December 2009, Prime Minister Datuk Seri Najib Razak made very clear Malaysia’s commitment to the green cause, pledging to cut up to 40 per cent of Malaysia’s carbon emission intensity in terms of GDP by the year 2020 (from year 2005 levels).

One of the key tools to help the government achieve this target could be the tax and incentive system. Over the years, the government has introduced a string of “green” incentives:

* Tax holiday for generation of energy using biomass, hydropower and solar power or providing energy conservation services.

* Tax holiday for generation of renewable energy for own consumption or incurring capital expenditure for conserving own energy consumption.

* Tax deduction for owners of buildings who construct or upgrade existing buildings to energy-efficient and environment-friendly buildings awarded green building index (GBI) certificates.

* Stamp duty exemption for first buyers of buildings awarded GBI certificates.* Import duty/sales tax exemption for energy-efficient equipment (e.g. refrigerators, air conditioners, and television sets), solar photovoltaic system equipment (for usage by third parties), and solar heating system equipment.

* Import duty/sales tax exemption for energy-efficient equipment (e.g. refrigerators, air conditioners, and television sets), solar photovoltaic system equipment (for usage by third parties), and solar heating system equipment. Some of these incentives will expire on December 31 2010 whilst some others are only available to those who submit the incentive applications by the same date.

For a start, the government should review the effectiveness of these incentives, and consider extending the availability period for those with positive results.

In addition, to ensure the most optimal results in addressing climate change, there should be a holistic approach in designing the green incentive (and potentially carbon tax) regime, with measures tailored to each target group.

Encouraging businesses to reduce emission

Currently, the Government grants tax exemption on income derived from the sale of Certified Emission Reduction (CER) certificates by approved clean development mechanism (CDM) projects (up to year of assessment 2010).

The government should consider extending the above incentive period. Further, the government should consider:

* Providing tax exemption to attract global carbon players such as carbon consultants.

* Providing a tax deduction for expenses incurred in the feasibility phase of CDM projects. Many a time, opportunities are lost simply because there is a lack of knowledge on the mechanics of creating a CDM project.

Carbon credits are tradable equities in global climate exchanges similar to securities and commodities in the stock markets. According to media reports, Malaysia potentially has 100 million tonnes of carbon credits, which can translate into some RM5 billion in revenue. In fact, Singapore has introduced tax incentives in respect of both CERs and emission derivatives.

Studies have shown that the construction and energy used to cool and heat buildings contribute to 33 per cent of the global carbon emission. In Malaysia, commercial and residential properties use up to 48 per cent of the electricity generated.

The incentive introduced last year for GBI buildings is a step in the right direction. However, only first buyers and owners of such buildings are eligible.

The government may consider expanding the scope across the entire supply chain for promoting/using green buildings by:

* Extending the stamp duty exemption to subsequent buyers to make “green” properties more attractive in the secondary market.

* Including the production of “green” building materials as promoted products for tax holidays to encourage manufacturers to produce the same.

* Extending tax incentives to promote development of entire “green” townships or cities.

Influencing behavioural changes towards a low carbon society.

Malaysia needs encouragement to shift its mindset to deal with environmental issues and this can be achieved by:

* Encouraging organisations to employ a “green officer” whose role is to look into how best to use energy efficiently and in a sustainable manner. The government could offer a double tax deduction on the associated costs.

* Offering businesses double deductions on costs of implementing energy conservation and sustainability initiatives.

* Granting tax rebates to individuals who make conscious decisions to “go green”, e.g. renovating their homes to be “green”, buying energy-saving household equipment or hybrid / electric vehicles, etc.

All over the world, governments are taking novel approaches in addressing global warming and there is no one-size-fits-all solution. As this is a relatively new area to Malaysia, perhaps the most effective way to put in motion the “green agenda” is to entice society to embrace green initiatives through incentives.

The article is written by Ernst & Young Tax Consultants Sdn Bhd director Amarjeet Singh and partner Yeo Eng Ping, with contribution from senior manager Sharon Yong. The information contained in this article is intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. On any specific matter, reference should be made to the appropriate adviser.

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