Environmental considerations should be taken care of in the proposed goods and service tax (GST) regime in the form of an eco-tax so as to encourage green practices, according to experts from the Madras School of Economics (MSE).

"Carefully designed use of fiscal instruments such as eco-taxes provide a framework in which the Centre and the states can develop a coordinated inter-governmental approach to tackle issues of pollution in the light of growth requirements while keeping emissions within acceptable limits," MSE Director D K Srivastava told an event organised by CII here.

As per the concept paper floated by the Madras School of Economics, introduction of an environmental levy in the form of non-rebatable Excise or cess on polluting goods and services will help increase tax revenue.

"We have shown through modelling that the tax to GDP ratio, which is around 16-17 percent can go up to 22 per cent over a period if eco-taxes are imposed in the proposed GST," Srivastava said, adding this rise in tax revenue can be utilised in increasing health and education expenditure.

Talking about specific categories on which tax can be imposed, KS Kavi Kavikumar of Madras School of Economics said non-rebatable levy of around 20 per cent could be imposed on petroleum products above the GST rates.

He also said both the Centre and states could decide five most polluting industries and impose eco-tax on them, to begin with.

According to the concept paper, effectiveness of eco- subsidies can be improved by suitably targeting the sectors like energy generation, particularly thermal energy, iron and steel, motor vehicles, paper, textiles and plastics among others.

About the imposition of eco-tax on growth rate, the research paper said there will not be have significant adverse implications on the growth rate.