Carbon tax increase, industry transition framework and provisions allowing use of eligible international carbon credits to take effect 1 January 2024, among other upcoming developments

26 September 2023

With effect from 1 January 2024, the Carbon Pricing (Amendment) Act 2022 (“Amendment Act”) will come into force. The Amendment Act amends the Carbon Pricing Act 2018 (“CPA”) to increase carbon tax rates and the price of a fixed-price carbon credit, introduce a transition framework to give eligible companies in emissions-intensive trade-exposed sectors more time to adjust to a low-carbon economy with the allowances determined based on efficiency standards and decarbonisation targets (“Allowance Framework”), and provide companies an option to use eligible international carbon credits (“ICC”) in lieu of paying carbon tax for up to 5% of their taxable emissions from 2024 onwards.

More information on the key amendments to the CPA is set out in our previous article titled “Bill to amend Carbon Pricing Act 2018 passed to increase carbon tax rates, introduce industry transition framework and option to use eligible international credits”.

The National Environment Agency (“NEA”) states that legislative amendments to regulations under the CPA are in the pipeline. It is expected that NEA will publish later in 2023 a whitelist of acceptable ICC which will include eligible host countries and carbon crediting programmes and methodologies. On this front, NEA is actively fostering international partnerships and has signed Memoranda of Understanding with more than 10 countries to facilitate access to high-quality ICC. The Economic Development Board is also expected to release more details on the Allowance Framework.

This article provides an update on notable developments in relation to carbon tax and credits since the Amendment Act was passed on 8 November 2022, namely the release of a spreadsheet to estimate reckonable greenhouse gas (“GHG”) emissions, changes in the tax treatment of carbon credits, and the launch of the Climate Action Data Trust (“CAD Trust”).

Estimation of reckonable GHG emissions

NEA has made available a spreadsheet (updated on 25 April 2023) to assist facilities regulated under the CPA in (1) estimating the reckonable GHG emissions from fuel combustion, which is based on the 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National Greenhouse Gas Inventories, and (2) determining the reckonable emissions thresholds which have been met and the compliance obligations to be fulfilled. The spreadsheet is available on the NEA Carbon Tax webpage.

Tax treatment of carbon credits

From 23 November 2022, goods and services tax (“GST”) is not chargeable on the consideration received for the issuance, transfer, or sale of any carbon credit or digital representation of a carbon credit, including those issued by NEA. Such transactions are treated as neither a supply of goods nor a supply of service. Carbon credits purchased from overseas exchanges or suppliers also fall outside the scope of imported services and are not subject to GST.

There has been no change to the GST-treatment of the supply of services relating to carbon credits such as carbon exchange services, brokering services, and legal services.

Before 23 November 2022, GST was chargeable for the issuance, transfer, or sale of non-NEA-issued carbon credits. Carbon credits purchased from overseas exchanges or suppliers fell within the scope of imported digital services which may have been subject to GST under the reverse charge or overseas vendor registration regime.

Input tax incurred on the purchase of carbon credits which are held for resale on or after 23 November 2022 is not claimable, save for carbon credits purchased before 23 November 2022. Where carbon credits are for a business’s own use to offset carbon emissions, input tax is claimable on such expenses if the conditions for claiming input tax are met.

More information on the tax treatment of carbon credits is available on the Inland Revenue Authority of Singapore (“IRAS”) Carbon Credits webpage.

Launch of CAD Trust

On 7 December 2022, the Singapore Government, the International Emissions Trading Association, and the World Bank launched the CAD Trust. The CAD Trust will provide a decentralised metadata platform, called Data Dashboard, which links, aggregates and harmonises all major carbon credit registry data to enhance transparent accounting in line with Article 6 of the Paris Agreement. It is expected that a fully operational Data Dashboard will be made available in Q4 2023.  

Reference materials

The following materials are available on the Singapore Statutes Online website sso.agc.gov.sg, Ministry of Sustainability and the Environment (“MSE”) website www.mse.gov.sg, NEA website www.nea.gov.sg, IRAS website www.iras.gov.sg, and CAD Trust website climateactiondata.org: