A new bill that will introduce an ecotax, a tax levied on activities considered harmful to the environment, is in the making.

Drafted by the Environment, Forest & Climate Change Commission, the bill has been in the making for the past five months and is expected to be tabled to the Council of Ministers this week. It will form the Eco-Fund, which will be reporting to the Prime Minister and will be tasked with administering the funds collected through the scheme. The Fund will be treated separately and be used for environmental protection.

Dubbed the Eco-system Service Payment, the proclamation is aimed at promoting environment-friendly activities through economic incentives. It will collect funds in two ways: through a green tax and an eco-system service fee; both will be treated separately with two new directives that will follow the legislation of the proclamation.

The green tax mainly targets pollutants that affect the environment in different ways and the collected taxes will be directed to environmental rehabilitation. It will be imposed on fossil fuels, petroleum, mining and the usage of pesticides, among others.

An eco-system service fee will be imposed on companies and service providers that base their business on natural resources. It is applied with a baseline contract to be signed with these businesses to make them contribute to the preservation and conservation of natural resources. It applies to national parks, water bottlers, private or public dam owners, genetic resources, and businesses in the tourism sector.

For the baseline contract, the companies will sign an agreement with regional authorities where they operate. They will also negotiate the fee. The funds to be mobilised from them will be used to maintain the flow of water, increase plantation coverage, and assist communities that are prone to flooding.

Tourists coming to the country will also be subjected to a fee, which will be set by a new directive that will be issued after the proclamation. The contribution will be included with the visa fee.

It intends to address the sustainability of natural resources, mitigate the externalities caused by pollution, and develop a new paradigm to invest in rehabilitation, according to Ayele Hegena (PhD), director general for policy, law and standards research development at the Commission.

“This kind of internalisation of external costs will lead to the re-allocation of the resources, which will increase social welfare,” Ayele toldFortune.

The Office of the Attorney General, which checked whether the bill overlaps or contradicts with other laws, reviewed the proclamation last week and forwarded it back to the Commission with some comments.