Preparing for the Future Tax Impact of Climate Change

Climate change is causing increasingly severe fluctuations in weather conditions around the world, along with natural disasters that affect the lives, property, and livelihoods of people worldwide. As a result, many countries, including Thailand, have begun to adapt to, and attempt to fight, human-influenced climate change. For example, the Thai Cabinet approved in principle the draft Climate Change Act B.E. (…), proposed by the Ministry of Natural Resources and Environment, to address and mitigate the crises being faced by Thailand and the world (please see our earlier publication, here).

The draft Climate Change Act establishes a carbon tax schedule for 32 energy products, the relevant as fuel oil, coal, and natural gas (“Specified Products”), with ministerial regulations empowered to include additional products in the future.

Although the law has not been finalized, its objective is to establish a framework for achieving net-zero greenhouse gas emissions.

If your business operations involve products that appear on the carbon tax schedule, you may incur significant obligations and responsibilities, particularly with respect to tax and carbon credit management, as briefly described below.

1. Controlled Entities

Where an industrial business imports any of the 32 Specified Products, or uses them in its manufacturing operations, the business may qualify as a “Controlled Entity,” which is defined as a public or private legal entity that directly or indirectly emits greenhouse gases. This includes, for example, entities engaged in the energy and transport sectors, as well as those engaging in industrial activities like non-metallic minerals, chemicals, metals, the production of fuels not used for energy and solvents, electronics, the use of substitutes for ozone-depleting substances, manufacturing electrical equipment, paper and pulp, and food and beverage industries.

2. Rights and Duties of Controlled Entities

By law, Controlled Entities are required to

• prepare and submit a “Greenhouse Gas Emissions Report,” and
• return allocated emissions rights equal to actual emissions within six months after the end of each fiscal year.

Controlled Entities may choose to

• carry forward unused rights to the next year, with approval,
• offset emissions with certified carbon credits, or
• use proof of carbon tax payments to request reductions in auction payments for emissions rights.

3. Carbon Tax, Penalties, and Surcharges

Carbon tax

Industrial operators or importers are required to pay carbon taxes in accordance with the tax rates set forth in the relevant ministerial regulations, which currently range from 12 to 120 baht per unit. While future legislation may provide for tax reductions below the established rates, the relevant rates shall not exceed the maximums in the schedule annexed to the Act. In addition, local taxes are payable as set forth in ministerial regulations, provided that the relevant local tax shall not exceed 10% of the carbon tax payable.

Tax liability

In the case of domestically manufactured products, tax liability arises at the time the relevant products are removed from the place of production. In the case of imported products, tax liability arises concurrently with the liability to pay customs duties under the customs law.

Penalties

Where a taxpayer fails to file a tax return or pay the tax within the required period, a fine equal to twice the amount of tax payable will be imposed. If a tax return is filed incorrectly, resulting in a tax shortfall, a fine equal to the amount of tax underpaid will apply. However, if the tax declared is understated by more than 25% of the tax payable, a fine equal to twice the amount of the tax shortfall will be imposed.

Surcharges

In the event of a failure to pay tax within the required period or where tax is underpaid, a surcharge at the rate of 1.5% per month or partial month will be imposed.

4. Filing and Payment of Carbon Tax

In the case of domestically manufactured products, carbon tax will be reported and paid to the Excise Department. In the case of imported products, the filing and payment are made to the Customs Department.

5. Tax Exemptions, Reductions, and Refunds

Industrial operators are entitled to credit the amount of carbon tax paid at the time of importing raw materials or components against the carbon tax payable on the finished products. If the amount of tax paid in advance exceeds the tax payable, the operator will be entitled to a refund of the excess amount.

6. Accounting and Recordkeeping Requirements

Operators are required to maintain daily accounts and monthly statements in the form established in the relevant Ministerial Notification and to retain the relevant records at their place of business for a period of not less than five years.

7. Carbon Credit Management

Management and Use of Carbon Credits

Carbon credits certified in accordance with the law are deemed assets and may be used for legal transactions.

Carbon Credit Businesses and Services

Businesses and services involving the transfer, purchase, sale, or other disposition of carbon credits are subject to the laws governing securities and exchange, derivatives trading, or digital asset businesses, as applicable, and must comply with the rules, procedures, and conditions established by notifications from the relevant authorities.

Draft Carbon Credit Act B.E. (…)

A draft Carbon Credit Act, B.E. (…) has been prepared in parallel with the draft Climate Change Act. At present, the draft Carbon Credit Act is at the public consultation stage, which includes the acceptance of draft proposals, collection of supporting signatures, and public dissemination of the draft.
The key purposes of the draft Carbon Credit Act are to establish measures to mitigate problems arising from the accumulation of greenhouse gases, promote effective greenhouse gas management, and develop market-based mechanisms to encourage voluntary reductions in greenhouse gas emissions through a fair and appropriate carbon credit system, which takes into account the rights, duties, and role of the public in emitting, reducing, or removing and sequestering carbon.

Key Implications of the Draft Carbon Credit Act for Business Operators

1. Summary of key definitions

• Carbon Credit refers to the amount of greenhouse gas emissions reduced or sequestered and certified under the relevant system, measured in tons of carbon dioxide equivalent (tCO₂e).
• Carbon Footprint refers to evidence of greenhouse gas emissions, measured in tons of carbon dioxide equivalent (tCO₂e).
• Primary Emitter refers to a person who produces, distributes, or exports greenhouse gases derived from fossil residues or other compounds, thereby causing downstream users to generate greenhouse gas emissions.

2. Climate Change Mitigation Measures

Measures to address climate change include

• preventing greenhouse gas emissions through calculation and reporting of standardized carbon footprints,
• reducing greenhouse gas emissions calculated as carbon credits in standardized units, and
• removing, absorbing, and sequestering greenhouse gases that generate direct positive environmental impacts, measured as standardized carbon credits.

3. Policy Approaches to Climate Change Mitigation

These include achieving net-zero greenhouse gas emissions, establishing good governance in carbon credit systems, and designating carbon credits as economic instruments.

4. Disclosure and Reporting Obligations

All levels of greenhouse gas emitters are required to disclose greenhouse gas emissions in the form of carbon footprints. Entities that reduce emissions or remove and sequester greenhouse gases may report carbon credits in order to receive benefits. Primary emitters (including producers, distributors, and exporters) are required to disclose emissions information to consumers and purchasers through the carbon credit registry system and to submit carbon footprint data to the carbon credit trading center, in accordance with applicable rules.

5. Legal Status of Certified Carbon Credits

Carbon credits certified by the Subcommittee for Evaluation and Certification under the law governing the establishment of the Thailand Greenhouse Gas Management Organization (Public Organization) may be managed in a manner that allows them to be treated as property or business collateral and used in legal transactions through the carbon credit trading center.

6. Penalties

The Draft Carbon Credit Act establishes criminal penalties for offenses, such as falsification of data or documents for carbon credit certification, submission of false statements to the committee or relevant officials, use of revoked or expired carbon credits, and obstruction or non-compliance with lawful orders. Penalties may include imprisonment, fines, or both, depending on the circumstances. In addition, administrative fines will be imposed for carrying out carbon credit transactions without being registered with the supervisory subcommittee.

Conclusion

If enacted, the draft legislation will introduce legal mechanisms to impose environmental taxes on the use of products with environmental impacts and to establish concrete measures for reducing greenhouse gas emissions. These developments are expected to require business operators to adapt their operations and industry practices to reduce greenhouse gas emissions in the future, not only to ensure the sustainability of their own businesses, but also to contribute to the long-term sustainability of the global environment.

Please note that this legislation is still at a preliminary stage. The Thai Cabinet has approved the Draft Climate Change Act B.E. (…) and Draft Carbon Credit Act B.E. (…) in principle only, and several additional procedural steps must occur before the draft acts become law. Consequently, it is expected to take several years before the draft acts are finalized and come into effect. Once enacted, the draft acts are expected to have wide-ranging implications for industrial operators, importers, and carbon market participants, so business operators may wish to monitor further legislative developments and assess compliance readiness.

This article is intended to provide only a regulatory overview, and is not intended to be comprehensive or to constitute legal advice. If you have any questions on this or on other areas of tax law, please do not hesitate to contact our Tax Team at SCL Nishimura & Asahi Limited.

Budhima Kerdsiri
Counsel

Hatairat Sukprasert
Associate

Authors