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Boosting green agenda via tax breaks

There is little doubt that climate change is a pressing global environmental challenge, bringing awareness of the need to reduce our impact on the environment.

In order to effectively curtail and mitigate the detrimental effects of climate change, a collective and concerted response involving individuals, businesses and governments is necessary.

Businesses are aware of the merits of pushing the green agenda. A 2010 Ernst & Young survey titled Action amid uncertainty: the business response to climate change found that despite uncertain economic conditions, global executives are committed to the climate-change agenda and expect investment in climate-change initiatives to rise in the next few years. The survey had polled 300 global executives spanning 16 countries and 18 industry sectors. Respondents believed that climate-change strategies can make money, save money and mitigate risk as businesses transform to a low-carbon economy.

Governments across the world are also demonstrating political will in making the right steps towards fighting climate change. In 2009, Singapore had pledged to undertake mitigation measures leading to a reduction of greenhouse gas emissions by 16 per cent versus projected business-as-usual levels by 2020.

Singapore also has a national climate-change strategy, which includes various initiatives to encourage lower emissions of greenhouse gases and enhance energy efficiency, as well as to invest in clean-energy technologies. To succeed in shifting to a low-carbon economy, aligning the country’s tax policies to its national climate-change strategy can go a long way in galvanising corporates and individuals around a more environmentally responsible culture.

With Singapore Budget 2011 just around the corner, it is opportune to consider how we can further advance the green agenda through tax measures and incentives.

Encouraging companies to find their carbon footprint

For a start, companies should be encouraged to determine their carbon footprint. This can then be used as a starting point to plan initiatives to lower their carbon footprint, enhance energy efficiency or implement recycling programmes.

Here, assistance in defraying the initial costs of establishing companies’ carbon footprint can help.

To this end, this year’s Budget can include enhanced tax deductions for companies that engage advisory or consultancy services to determine their carbon footprints and recommend specific measures to reduce carbon emissions or improve energy efficiency.

Encouraging companies to enhance energy efficiency

Currently, Singapore’s Income Tax Act provides for a 100 per cent accelerated capital allowance for certified energy-efficient or energy-saving equipment.

To stretch the attractiveness of the capital allowance scheme, the government could consider providing an investment allowance to allow additional deductions of 50 per cent for businesses that invest in energy-efficient equipment.

The investment allowance could include the replacement of energy-consuming office and processing equipment with more energy-efficient or energy-saving ones, and the installation of pollution or energy-control systems.

Establishing Singapore as a test bed for clean technology

There is also a real opportunity for Singapore companies to develop capabilities in the area of clean technology, such as solar energy, fuel-cell technology, and water and wastewater management.

Investments in developing Singapore as a front-runner in this sector has huge downstream business potential and tangible benefits to the long-term economic growth of Singapore. To encourage companies to identify, pilot and test-bed clean-energy ideas, prototypes and solutions in Singapore, the government can consider enhancing research and development grants and incentives for the clean-technology sector, as well as enhancing tax deductions for angel investors and venture capitalists in the sector.

Encouraging green buildings

With Singapore continuing to see expansion in the real estate sector, it is important to encourage the development and use of energy-efficient buildings.

One way to do so is to link tax incentives, such as property tax rebates, to the Green Mark Scheme that is currently administered by the Building and Construction Authority.

Influencing consumer behaviour

The difference that every consumer can make towards the green agenda should not be underestimated. However, considerable inertia or prohibitive costs can sometimes discourage green behaviours. Budget measures geared towards helping consumers embrace green practices will be welcomed.

For example, tax rebates can be availed to homeowners, or even property developers, who install energy-efficient applications such as solar panels to help in defraying capital costs. This will also go some way in creating economies of scale that can eventually bring down the cost of solar panels.

In addition, the Budget could include an extension of the Green Vehicle Rebate, which currently offers a 40 per cent rebate equivalent to the open market value of electric, hybrid and CNG passenger cars, but will expire on Dec 31, 2011.

This will hopefully motivate more consumers to reduce their carbon footprint by switching to green vehicles that are more fuel-efficient.


Combating the threats of climate change requires the participation and buy-in of various stakeholders. Tax policies, when used wisely, can be a proactive and effective way to influence the right corporate and individual behaviours.

While the call for green is not new, there are always opportunities to further fine-tune our fiscal regime to align with the country’s larger climate-change strategy. The inclusion of more green-friendly tax incentives in this year’s Budget will certainly be much welcomed.

The author, Latha Mathew, is a Tax Partner, Ernst & Young Solutions LLP

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