Singapore has become an ideal business location due to its thriving economy and pleasant environment. In addition, many businesses have relocated to this Southeast Asian country as a result of the country’s environmental and aesthetic appeal. As a result, the country has become a hub for both domestic and international industrial enterprises.
Although Singapore’s many industrial facilities and plants help advance its economy, the majority emit greenhouse gasses above the internationally recommended threshold. These gasses contribute to environmental pollution. To reduce these pollutants to safer levels, the Singapore government has implemented a carbon tax. The government hopes that with the tax, businesses will be encouraged to seek sustainable approaches to reducing emissions and also start investing in green energy projects.
But how exactly does this tax work? Who must pay it, and at what rate? To answer these questions and more, we’ve put together this comprehensive guide. So read on for all the details you need about Singapore’s carbon tax.
What Is Carbon Tax In Singapore?
A carbon tax is a fee levied on companies and businesses for emitting greenhouse gases into the atmosphere. This tax, which is similar to a penalty, is intended to encourage businesses to use cleaner energy and reduce their emissions. Aside from that, the Singapore government hopes to use the revenue generated by such taxes to fund green initiatives.
The government hopes that the tax, which covers approximately 80% of Singapore’s total greenhouse gas emissions from approximately 50 facilities, will hold businesses accountable for any of their activities which can contribute to climate change.
This tax affects carbon-intensive businesses that provide goods and services in the manufacturing, power, waste, and water sectors of the economy. The country’s transition towards a low-carbon economy began on January 1st, 2019.
What Are The Carbon Tax Rates In Singapore?
The carbon tax is levied on businesses based on the rate of their emissions. The more greenhouse gasses a company emits, the more money it must pay in taxes.
Singapore had set its carbon tax rate at S$5 per tonne of emissions in 2019, following the implementation of the tax in the country. This rate was set to be in effect for five years, from 2019 to 2023, before being adjusted. This period has allowed businesses to adjust their operations to reflect the government’s net-zero target.
The government intends to take serious steps to ensure that businesses emit no greenhouse gasses. It does not, however, intend to drive any company out of business. As a result, the government has decided to impose carbon tax increases in phases. The carbon tax rate is set to be S$25 per tonne of emissions beginning in 2024 and 2025. Then, the rate would be raised to S$45 per tonne of emissions in 2026. The end goal is to charge a carbon tax of S$50-80 per tonne of emissions by 2030.
The revenue generated by the tax increases is not intended to be used by the government for anything other than supporting the transition to a green economy. Also, part of the funds will be used to mitigate the adverse effects of these decarbonisation efforts on businesses and households. Ultimately, the rates charged to businesses are to ensure that they meet the Singapore government’s net zero greenhouse gas target.
Who Has To Pay The Singapore Carbon Tax?
Every company incorporated in Singapore needs to file their corporate taxes every year, but the Singapore carbon tax does not apply to all businesses. Companies that are to pay this tax are those that release greenhouse gasses beyond the specified emissions limit. As a result, the companies that are affected are those that produce large amounts of these gasses in the course of their operations.
The tax currently applies to businesses that emit 25,000 tonnes or more of greenhouse gasses per year. However, once the limit is exceeded, there will be no exemption for any such company, which will have to pay these taxes regardless of the sectors of the economy they serve. This means that these fees will eventually also have an influence on their customers.
Companies, like electricity companies that operate power plants where emissions are unavoidable are allowed to pass the costs on to customers in the form of higher electricity tariffs. Others, for example, in the consumer food business, also get to raise their prices as well. To assist these businesses and their customers, the government has offered several incentives and grants. Nonetheless, a portion of the tax will still have to be borne by the customers.
It is important to note that companies that fail to measure their greenhouse gas emissions accurately may face financial penalties. Companies that do not register for the tax even when they know they are eligible will also face financial penalties. As a result, to meet their tax obligations, businesses must estimate their own average emissions over the period under consideration.
Allowances Are Provided To Companies In The Emissions-Intensive Trade-Exposed (EITE) Sectors
Companies in the Emissions-Intensive Trade-Exposed (EITE) sectors face higher costs than competitors in nations where carbon emissions are taxed at a lower or zero rate. These businesses also provide a significant number of jobs and are of economic value to Singapore. As a result, despite its commitment to a green economy, Singapore’s government intends to still ensure the country’s economic growth. The government is aiming to accomplish this by providing a transition framework to companies in the EITE sectors.
EITE companies include those in the chemical, electronics, and biomedical manufacturing sectors, while non-EITE companies include those in domestic-oriented sectors such as power generation and waste management. The transition framework provided to EITE companies will help mitigate the short-term negative effects of the climate change policy. One worthy component of such a framework is the provision of allowances for a portion of a company’s emissions.
Companies Can Reduce Their Carbon Tax By Utilising Their International Carbon Credits
Beginning in 2024, companies in Singapore will be able to use high-quality international carbon credits to reduce their carbon tax liabilities. These credits are typically generated by projects in other countries that are meant to reduce greenhouse gas emissions.
However, in Singapore, the number of credits that can be used to lessen tax liabilities is limited. In addition, the credit must meet certain eligibility requirements. One of them is that the amount of tax that can be reduced with the credits is limited.
Currently, the percentage of the carbon tax that can be reduced is limited to a maximum of 5% beginning in 2024. The deduction ensures that the effects of the tax are cushioned for businesses while still encouraging them to seek local measures to reduce emissions.
Emissions Covered Under The Carbon Tax
Carbon Taxes are levied in Singapore on facilities that emit 25,000 tonnes or more of greenhouse gasses per year. This tax currently covers six greenhouse gasses: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
However, beginning in 2024, the Singapore government will add nitrogen trifluoride (NF3) to the list of prohibited emissions. This is consistent with the United Nations Framework Convention on Climate Change (UNFCCC) and its Katowice rulebook, which requires consenting countries to include the gasses in their national emissions inventory reporting by 2024.
The Carbon Tax in Singapore is essentially a measure implemented to reduce greenhouse gas emissions and combat climate change. The tax is levied on companies, usually large ones, that emit a significant amount of greenhouse gas emissions. The imposition of this tax encourages these businesses to reduce their emissions and adopt more sustainable practices.
The carbon tax is one component of Singapore’s commitment to transitioning to a low-carbon economy. Given its significance in building a more sustainable economy, the importance of registering for such a tax and fulfilling all obligations regarding it is evident. Using the services of an excellent financial and taxation services firm is a good way to ensure that your company meets all of its carbon tax obligations in Singapore.