Taxonomy is not about taxes
JULY 24, 2024
By Vijay Kumar
WHEN I heard the Finance Minister mention taxonomy in her 2024 budget speech, I thought it is something about taxes. In para 104 of her speech, the Finance Minister stated,
104. We will develop a taxonomy for climate finance for enhancing the availability of capital for climate adaptation and mitigation. This will support achievement of the country's climate commitments and green transition.
What is taxonomy?
Like most tax expressions which are usually Greek and Latin to common people, who as far as budget is concerned just want to know, 'what's in it for me', this word also has its origin in Greek.
The term "taxonomy" was derived from two Greek words, "taxis," meaning arrangement, and "nomia," meaning distribution or method. Taxonomy is a branch of science that deals primarily with the description, identification, nomenclature, and classification of organisms. It is essential to classify living organisms into different groups and subgroups. The scientific definition of taxonomy is that it involves the classification of organisms both alive and extinct. Also, it includes the naming and arranging of organisms in higher groups. Taxonomy involves studying living organisms such as animals, plants, microorganisms, and humans to classify them in different categories. For instance, humans and whales are two unrelated organisms but, both are considered mammals and taxonomically related.
But what is all this biology doing in a Union Budget? This is about taxonomy for climate finance. And what is that?
Taxonomy for climate finance refers to a classification system that helps define and categorize various financial activities and investments based on their environmental sustainability and contribution to climate goals. It aims to establish clear criteria for what constitutes "green" or "sustainable" investments, guiding investors, companies, and policymakers in their decision-making processes.
Key Functions of a Climate Finance Taxonomy:
1. Clarity and Standardization: It creates a common language for understanding and categorizing climate-related investments.
2. Investment Direction: It helps channel investments towards projects and activities that have a positive impact on the environment.
3. Risk Management: It aids in assessing climate-related risks and opportunities.
4. Policy Support: It informs the development of climate policies and regulations.
By providing a clear and consistent framework, climate finance taxonomies play a crucial role in mobilizing the capital needed to address climate change. The European Union's Taxonomy Regulation, is one of the most comprehensive efforts to create a unified classification system, providing a benchmark for sustainable investment that helps direct capital towards green and sustainable projects.
And now the Indian government is developing its own taxonomy to facilitate climate finance.
About GST, the Finance Minister said, "To multiply the benefits of GST, we will strive to further simplify and rationalise the tax structure and endeavour to expand it to the remaining sectors."
I am reminded of a simplification that happened eighty years ago:
The Statement of Objects and Reasons of the Central Excises and Salt Act, 1944 stated:-
The administration of internal commodity taxation in British India has grown up piecemeal over many years and has been considerably expanded during the last decade. The agglomeration of statute and regulations dealing with similar matters is neither convenient for the public nor conducive to well-organised administration..
It is accordingly proposed to consolidate in a single enactment all the laws relating to central duties of excise and to the tax on salt and to embody therein a Schedule, similar to that in the Indian Tariff Act, 1934 setting forth the rates of duty leviable on each class of goods. At the same time, the statutory rules will be similarly amalgamated and disembarrassed of their unnecessary details. The Act and the consolidated statutory rules, together with as many manuals of departmental instructions as may be necessary, will then form a complete Central Excise Code, which will simplify the administration of this branch of the revenue system and aid such further development as may be necessary......
Maybe, a complete GST Code is on the way.
The Economic Survey released a day prior to the Budget made quite an interesting read. See this extract:
For India's working-age population to be gainfully employed, they need skills and good health. Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India's economic potential. The private sector's contribution to this toxic mix of habits is substantial, and that is myopic. The emerging food consumption habits of Indians are not only unhealthy but also environmentally unsustainable. India's traditional lifestyle, food and recipes have shown how to live healthily and in harmony with nature and the environment for centuries. It makes commercial sense for Indian businesses to learn about and embrace them, for they have a global market waiting to be led rather than tapped.
Is the Government telling businessmen how to make money?
It's budget time - you have too much to read and understand. So, I leave you with another quote from the Finance Minister's latest Budget speech in para 137...
The purpose is to make the Act concise, lucid, easy to read and understand.
Until next week