Take Home Exam

MBAT/20/240: M.H.D. Meneripitiya

Sub Group No: 03

Course : MBAT 601 : sustainability

Instructors : Dr. Ravi Fernando
Term : 01 April - 30 june 2021 ( 26.06.2021)

Postgraduate Institute of Management

University of Sri Jayewardenerura
2015 in Paris, all the member countries of Unaided Nation reached the agreement to achieve the
Sustainable Development Goals (SDGs). Seventeen golas were adopted as a universal action plan
to eliminate the poverty, protect the environment, and ensure the peace and prosperity to the
people. The action plan has been designed for 15 years period and SDGs have to be achieved at
2030. According to the action plan world political leaders, corporate leaders, government officials,
researchers, scientist have to make a transformation to achieve the goals.
SDG 7: Affordable and clean energy

The goal no 7 is one of the main goal to be achieved as soon as possible since this goal is highly
intergraded with the climatic emergency situation. The basic target of the goal 7 is to ensure the
availability and affordability to the clean energy all over the world. Following facts illustrate the
importance of this goal.

• 13% of the world population do not have access to the electercity

• Almost three billion people in the world do not have clean energy for cooking and heating.
• Energy generation using the fossil fuels , and consumption of fossil fuel as energy source
contribute to 60% of total global green house gas emission.
• Green House Gas (GHG) is the dominant contributor to the Global warming and ultimately
create climate emergency situation in the earth.
• Polluted air is the world largest killer and top most industrilised countries like Chin a nas
India annual premature death due to air pollution is greater than 1 million.

SDGs no7 target to achive following in year 2030.

• Ensure access to affordable, reliable and modern energy

• Increase the share of renewable energy in the global energy mix
• Improve the energy efficiency
• Reduce the global warning by 1.5 degree of celcius

Global energy mix and energy consumption

Mainly energy is used for the electricity generation, Transportation, Industrial purposes, heating
& cooking and other purposes. Just like the global practice in Sri Lanka also use the energy mix
to generate energy for these purposes. In SD point of view energy source can be divide as non
renewable energy- Renewable energy and high carbon emission energy source ans low carbon
emission energy source.
Data of Global Energy mix for electricity generation and total energy

Sri Lanka Energy Mix for electricity generation over the year

Source 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Hydropo
39.38% 49.38% 40.22% 41.76% 39.42% 52.59% 40.09% 27.89% 57.91% 36.69% 45.60% 29.83% 27.29% 41.76%
wer
Fuel oil 60.60% 50.60% 59.76% 58.21% 60.31% 46.61% 49.86% 58.76% 27.62% 34.85% 17.38% 31.53% 34.39% 23.73%
Coal 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 9.00% 11.90% 12.28% 25.91% 33.94% 35.67% 34.78% 31.17%
Other
renewabl 0.02% 0.02% 0.02% 0.03% 0.27% 0.80% 1.05% 1.45% 2.19% 2.55% 3.07% 2.98% 3.54% 3.34%
es

Table 1: Percentage of energy mix In Sri Lanka Over the years

Chart Title
80.00%
60.00%
40.00%
20.00%
0.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Hydropower Fuel oil Coal Other renewables

Graph 1: Trend In Sri Lanka Energy mix 2005- 2018

Both these global and local data revels that in Energy mix for electricity generation more than
one third of energy comes from the low carbon source like hydro power, nuclear power and
renewable energy like solar and wind power. However in total energy mix the contribution of
low carbon sources are significantly lower due to energy for transportation relay on the fossil
fuel.

In line with the global trend even in Sri Lanka emerging trend can be identified for the use of
more renewable energy specially solar power. Therefore as per the leaders of the government,
coporate leaders and government officials have a responsibility to promote the renewable energy
in Sri lanka

What are the current initiations taken by the Tax policy and administration perspective to
promote the sustainable energy generation and consumption in Sri Lanka

By act no 10 of 2006 By act no 24 of 2017 By the amended bill in 2021

Under the section 17A profit
and income have been
exempted from tax from 6
year to 12 years period on ;
power generation using
renewable resources;
forestry
By the section 34s of the act
tax deduction is allowed on
high tech machineries used
for the generation of
renewable energy
Petroleum industry has been
subsidized including the
Ceylon petroleum corporation industries has been subsidized
Under sixth schedule of the
Act 14% concessionary tax
rate has been introduced on
entities provide electricity
generated using renewable
resources, for the three years
By the section 65 of the act
petroleum exploitation
Seven years tax exemption
was given for any renewable
energy project established
with a capacity to produce not
less than one hundred Mega
Watts of solar or wind power
and supplied such power to
the national grid,

The act on 10 of 2006 is not in operation since 2016 and new act was introduced since 2017 and
certain amendment were introduced that act since 2021. Energy sustainability point of view there
are both plus and minus point in the current act and its amendment. Act it self promote the
renewable energy generation and petroleum industry both simultaneously.

Strategy has been formulated based on following tax principles.

• Taxation is basically for the collection of government revenue

• Taxation can be used to shape the economy and fiscal policies of the country
• Taxation can be used to eliminate the harmful business practices and promote certain
sectors as per the government priorities.
• Certain sector can be promote using the various tax concessions and harmful business
can be discourage by high tax rates and introducing new tax eliments
• Tax concessions can be given by the way of tax exemptions, concessionary tax rates,
Introducing tax free allowance, introducing tax qualifying payments to deduct.

Based on the above principles following suggestions were introduced to move to the 100%
renewable energy consumption.

Identified sector Details of requirements and Value of tax concession Time

for taxation tax concessions or surcharges frame
Non corporate Those who use solor energy in 1% reduction of tax rate Start from
individuals their house hold and have less application from the 2021/2022
(In sri lanka there than 500 unit of electricity standard value
are almost 300,000 consumption from national grid
registered tax per annum to be tax under
payers ) concessionary tax rate for
Individual income tax
Those who have consume more Add 1% additional tax Start from
than 4000 unit of electricity rate in tax liability 2021/2022
calculation
 from national grid to be liable
for additional tax
Banking and Those who have funded more
financial sector than 25% on fossil fuel driven
corporation industries and fossil fuel
generating industries
additional tax rate application
Manufacturing The capital cost incurred on
Industries transformation to renewable
energy to be allowed as
qualifying payment
Service sector The capital cost incurred on
corporates transformation to renewable
energy to be allowed as
qualifying payment
Larger and Mandatory to submit the
medium sector energy sustainability report
corporations with the audited financial
statements. Corporations has to
be ranks according to the
sustainability index.
Sustainability index marks
below the 3.0 to be charged
with the additional tax as
surcharge
Answer to question no 4
Additional 1% to be Start from
added to their standard 2021/2022
tax rates as a
sustainability surcharge
Up to 100 million During
Qualified deduction on 2021-2025
capital nature expenses
to be allowed to deduct
against the taxable
income
Up to 50 million During
Qualified deduction on 2021-2025
capital nature expenses
to be allowed to deduct
against the taxable
income
1% additional tax rate From 2025
on standard tax rate on wards
Even thought the 70 % of the world surface is covered by the water, the consumable fresh water
is no longer abundant resource in the earth. Only 2.5% of the world’s water is freshwater and most
of this are in the form of polar ice-cap. Only 0.5% of world’s water is available for the consumption
to all living beings in the earth. In simple terms the water crisis is lack of clean fresh water to
fulfill the current demand from the peoples. Because of the magnitude of this crisis world economic
forum in 2015, enounced the water scarcity as a global crisis and year 2018- 2028 has been named
as water action decade.

Why does the water treat as much needed recourse for the life?

Out of the human body weight 60% is represent by the water. Different organs of the body do have
different level of water content and some important organs like heart, lungs, brain contain more
the 75% of water. There are some living being, their 90% of body weight is consisted with water.

What does the water do inside the human body:

Human use water for three major purposes

1. For domestic purposes including drinking, cooking, washing and bathing

2. For agricultural purpose to irrigate the plant and animals
3. For industrial purpose basically as coolant, raw material and for the process like washing.
The magnitude of the Global water crisis

• 780 million people in the world have no service of basic drinking water
• Almost 2 billion people in the world as no facility to basic water service is equal to one
fourth of world population
• 2.4 billion people lack access to basic sanitation services, such as toilets or latrines
• More than 40 % of the global population affected with the water scarcity .
• 80% of waste water 2.4 billion people lack access to basic sanitation services, such as
toilets or latrines
• ach day, nearly 1,000 children die due to preventable water and sanitation-related diarrheal
diseases
• Approximately 70 per cent of all water abstracted from rivers, lakes and aquifers is used
for irrigation
• Floods and other water-related disasters account for 70 per cent of all deaths related to
natural disasters.

The major reasons to water crisis is irregular distribution of the water in thw world and the water
pollution due to human activities

Because of all these reasons UNSDGs has been selected clean water and sanitization as its goal
no. 6 which has to be achieved in year 2030. Followings are the main targets of the SDGs no.6;

• Achieve universal and equitable access to safe drinking water for all
• Achieve access to adequate sanitation and hygiene for all and end open defecation.
• Improve water quality by reducing pollution, eliminating dumping and minimizing release
of hazardous chemicals
• Increase the recycling and reuse the water in globally
• Increase the water use efficiency
• Implement intergraded water resource management system.
• Protect and restore water related eco systems

With compared to the world figures Still Sri Lanka is fortunate to have almost 85% of population
to access to the safe water and 905 of the population have access to the improved sanitation.
However, our agriculture sector and irrigation system have experienced the water scarcity due to
decrease no of days of rain fall and drought. Especially North central, north -western and south
eastern parts of the country experience these situations. Meanwhile the central hill country, western
and southern wet lands of the country’s natural water systems are highly endangered due to
industrial pollutions, mal developments and water contamination with the agrochemicals and
fertilizer.

The best solutions to the existing water related issues in Sri Lanka

1. Reduce the water pollution

2. Efficient management of water consumption
3. Reuse and recycle the water for purpose other than drinking
4. Used modern techniques for agriculture like dry farming, irrigation scheduling, drip
irrigation, and use cover crops .
5. Use rain water harvesting for the water need in area where water is limited.

Inland Revenue initiatives to in line with the SDG’s 6 requirement.

Unfortunately, the existing tax Act and tax administration has not been consider the sustainable
consumption of this vital natural resource. This due to the policy makers has not yet recognize the
important of this and the science behind the water scarcity in Sri lanka.

Rely on the basic tax principles and administering strategies

Identified sector Details of requirements and Value of tax concession Time

for taxation tax concessions or surcharges frame
Non corporate Promote recycling of water for 1% reduction of tax rate Start from
individuals other than drinking. application from the 2021/2022
(In sri lanka there Eg. Per capita water standard value
are almost 300,000 consumption for toiletry is 2- 5
registered tax gallon per day.
payers )
Those who have consume more Start from
than 1000 unit of water from 2021/2022
 national water supply will
allow concessionary tax rate
Agricultural sector The corporation who used Up to 100 million Start from
modern water management Qualified deduction on 2021/2022
systems for agricultural capital nature expenses
purpose like drip agriculture, to be allowed to deduct
the total cost incurred on this against the taxable
has to be allowed as a income
deduction under qualifying
payment
SME sector Company who used rain water Revenue and capital Start from
harvesting systems for the their expenditure to be 2021/2022
general water demand purpose, allowed for 5 year
totals cost incurred on period
implementation and maintained
of system to be allowed as
deduction against the taxable
income
Manufacturing The capital cost incurred on Up to 100 million During
Industries waste water treatment plant to Qualified deduction on 2021-2025
be allowed as qualifying capital nature expenses
payment to be allowed to deduct
against the taxable
income
Service sector The capital cost incurred on Up to 50 million During
corporates waste water treatment plant to Qualified deduction on 2021-2025
be allowed as qualifying capital nature expenses
payment to be allowed to deduct
against the taxable
income
 Larger and Mandatory to submit the water 1% additional tax rate From 2025
medium sector sustainability report with the on standard tax rate on wards
corporations audited financial statements.
Corporations has to be ranks
according to the sustainability
index. Sustainability index
marks below the 3.0 to be
charged with the additional tax
as surcharge 1% reduction of tax rate
Sustainability index marks application from the
above the 6.0 to be tax tax standard value
concessionary tax rate

Banking and Financial institutes who funded Fromm

finance sector the modern water management 2022
systems, waste water
management systems a and rain
water harvesting system to be
released from VAT on finance
on debt given for these purpose

Answer for question 2

Sustainable Development (SD) which is a concept that developed from the middle of the 20th
century.

Formally the concept has been developed by the different organizations time to time

1. Meadows report (The limited Growth) By club report of Rome presented to UN conference
in Switzerland in 1972
2. Eco – development (1981)
3. Intensive development (1986)
4. Brundtland Report 1987

Definition for SD as per Brundtland Report 1987

“development that meets the needs of the present without compromising the ability of future
generations to meet their own needs”

Brundtland report basically discussed two concepts of:

1. Needs – People do have need. Eg needs for energy, need for water, need to escape from
poverty and Etc. one important causes to the need is unequall distribution of resource in
different geographical areas and countries.
2. Limitation – resource are limited and most of the resources are non renewable and there are
limits to use the resources due to environmental and social issues

Principal 4 of the Rio declaration states: “In order to achieve sustainable development,
environmental protection shall constitute an integral part of the development process” (United
Nations Conference on Environment and Development 1992 in Rio de Jairo )

Accordingly the Rio summit further details the sustainable development as the economic
development to be to be intergraded with the policies’ of that eliminate the threats to the survival
of planet. There should be a strategic planning and transformation process to achive the economic
sustainability with the ecosystem sustainability.

This definition has been further strengthen by the Johannesburg summit in 2002 as “The reckless
pursuit of economic growth today might leave our children with a larger inheritance of economic
assets, but could seriously deplete environmental resources” (United Nations Environment
Program and the International Energy Agency 2002, 5).
Triple bottom line is the accounting framework with the three parts of financial, environmental
and social measures. The profit is the bottom line of the financial framework, planet is the bottom
line of the environmental framework. People is the bottom line of the social framework. This
concept can be used by the government or the corporate to evaluate their process.

Further the profit is the economic value created by the organization after deducting the cost of all
inputs. The planet is the sustainable environmental practices. The people is the fair and beneficial
business practices toward labor and the community.

Eg for TBL

Profit = Planet = People

For sustainable development these three aspects has to be balance mutually. Most instance when
try to focus on profit aspect it make damage to the planet and people.

Ed. Building a water reservoir in rain forest area for electricity generation. This will make marm
to the environment while benefits to the peoples and economy.

Eg. Amazon rain forest deforestation in Brazil for the agricultural process this is not a sustainable
development

Eg for Sustainable development

Sri lanka government recently introduced the Chemical fertilizer/ agro chemical free agriculture
system to Sri lanka.

In this case government has to balance the Triple bottom line of agriculture yield, peoples health
and damaged to the ecosystems in the country due to the fertilizer and agrochemicals. Decision
has to be taken bade son the what aspect is the most important.

Eg. For sustainable development achieved by balancing the Triple bottom lines

Tesla company was able to introduces environmental friendly solor power motor car to the
motor vehicle industry while keeping the profit at very high level.

New Zealand prime minister Jacinda Arden able to manage the covid 19 pandamic situation
while keeping the triple bottom line in balance

Ansewr for Q 5:
UNSGs 15 is refers to the life on land : under this it discuss the protection of nature including the
forest, food. In todays globe the nature is under threatened due to the human activities and
natural disasters as well.

Deforestation and dentification is the biggest issues to the mother nature.

The significant of the deforestation and damaged to the nature

• As per the researchers there are I trillion different species in the planet earth
• Almost 95 % of the species are inhibited in the forests
• Only 31% iof land area is the forest cover in the world
• Sri Lanka forest cover in 2020 is only 17% of land area.
• Around 1.6 billion people depend on forests for their livelihood, including 70 million
indigenous people.
• Forests are home to more than 80 per cent of all terrestrial species of animals, plants and
insects.
• Of the 8,300 animal breeds known, 8 per cent are extinct and 22 per cent are at risk of
extinctio Between 2010 and 2015, the world lost 3.3 million hectares of forest areas. Poor
rural women depend on common pool resources and are especially affected by their
depletion
• Arable land loss is estimated at 30 to 35 times the historical rate
• Due to drought and desertification, 12 million hectares are lost each year (23 hectares per
minute). Within one year, 20 million tons of grain could have been grown.
• 74 per cent of the poor are directly affected by land degradation globally

Therefore SDG 15 target the followingto achieve in 2030

• By 2020, ensure the conservation, restoration and sustainable use of terrestrial and inland
freshwater ecosystems and their services, in particular forests, wetlands, mountains and
drylands, in line with obligations under international agreements
 • promote the implementation of sustainable management of all types of forests, halt
deforestation, restore degraded forests and substantially
• By 2030, combat desertification, restore degraded land and soil, including land affected
by desertification,
• y 2030, ensure the conservation of mountain ecosystems, including their biodiversity, in
order to enhance their capacity to

Inland Revenue initiatives to in line with the SDG’s 6 requirement.

Unfortunately, the existing tax Act and tax administration has not been consider the sustainable
consumption of this vital natural resource. This due to the policy makers has not yet recognize the
important of this and the science behind the water scarcity in Sri lanka.

Rely on the basic tax principles and administering strategies

Identified sector Details of requirements and Value of tax concession Time

for taxation tax concessions or surcharges frame
Agricultural sector Promote reforestation by Start from
allowing ten year tax 2021/2022
exemption on companies
engaged in reforestation
Manufacturing Tax exemption companies who
sector manufacturing substitute
materials for wood for the
construction industry

Banking and Financial institutes who funded Fromm

finance sector the reforestation to be released 2022
from VAT on finance on debt
given for these purpose