The Role of Corporate Taxation in Promoting Sustainability

Implementing policies that promote sustainability across four areas – people, planet, purpose and profit – is at the center of any company’s sustainability strategy, but doing so successfully may prove challenging.

Taxation is an integral element of sustainability, so in this article we will look at how corporate taxes impact sustainability and discuss ways to ensure sustainable tax revenue collections.

1. Taxes on carbon emissions

Taxes and incentives can be used to promote sustainability, including carbon emissions taxes, efficiency incentives and clean energy standards. However, it is important to remember that such measures may disproportionately impact low-income households due to globalization and capital tax recycling complication.

To meet Paris-align warming limits, a comprehensive climate policy will likely involve the explicit pricing of carbon and other fossil fuel taxes (oil and gas), along with additional mitigation measures such as substitution behaviors that reduce emissions such as products made with less carbon-intensive production technologies and incentives integrated with carbon prices for maximum impact.

Sustainable development with environmental sensitivity at its core is fundamental for economic prosperity. But its environmental externalities may place additional burdens on enterprises; internalizing them via corporate benefits through taxation policies is the best way to encourage their adoption. In this paper, an empirical analysis is performed on tax equity’s effects on green innovation corporate business using reform of China’s enforcement system as a quasi-natural experimental context.

2. Taxes on pollution

Taxes, often seen as the least desirable aspect of corporate sustainability, is frequently perceived as less-than-ideal. Businesses frequently strive to minimize taxes as a means to maximize profits and shareholder value.

Corporations in the US are subject to double taxation compared with pass-through entities such as sole proprietorships, partnerships and S corporations which only pay one layer of taxes on their profits.

This study employs a fully modified ordinary least square regression model to investigate the impact of enterprise tax enforcement reforms on sustainable development. All regressions passed cross-sectional dependence tests, unit root tests and model selection tests in order to ensure robustness. Furthermore, in order to exclude possible effects due to other policies related to enterprise sustainability from contributing, all regressions used a placebo year as an artificial substitute of their experimental year in order to ensure robustness.

3. Taxes on water

American corporations have begun taking sustainability initiatives more seriously. But simply focusing on environmental and social responsibility alone won’t suffice if companies want to become truly sustainable forces for good; fiscal responsibility must also play a part in this strategy.

The Sustainable Development Goals adopted by the UN serve as a roadmap towards peace and prosperity for all people and the planet now and into the future. Reaching these goals requires funding from various sources – including taxes.

This study empirically investigates how corporate taxation influences sustainability using green innovation as a mediator variable. Employing a panel dataset comprising BRIC and CIVETS countries from 2000-2021, regression results demonstrate that taxation significantly contributes to sustainable development; its effect increases with favorable market environments, having more of an effectful outcome with young firms than more mature ones.

4. Taxes on waste disposal

As part of its plan to decarbonise the economy, decarbonisation could cause many revenue sources associated with oil taxes (fuel duties), vehicle excise duty and landfill taxes to decline significantly in future. Therefore, new forms of taxation that do not diminish existing bases but instead fund sustainable public spending must be developed accordingly.

Regression analyses with green innovation as the dependent variable reveal that reforms of both taxation system and enforcement agency can significantly decrease tax inequity, leading to increases in enterprise sustainability measured using total factor productivity or labor intensity measures. We find this effect to be robust against various measures of enterprise sustainability including total factor productivity or labor intensity.

Corporate leaders increasingly take sustainability seriously and are working toward meeting environmental targets more quickly. To accomplish this goal, they will need to examine their sustainability tax incentives carefully.