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In brief

Discussion about and around sustainable development is more critical now than ever as governments around the world have announced their commitment to achieve carbon neutrality and net zero greenhouse gas emissions during the 26th United Nations Climate Change’s Conferences of the Parties (COP 26) in Glasgow, and Thailand is no exception. Prime Minister Prayut Chan-o-cha announced Thailand’s commitment to become carbon neutral by 2050 and have net zero greenhouse gas emissions by 2065.


To achieve the national commitment by means of both incentives and disincentives, Thailand has started, via various government agencies and public organizations, such as the Thailand Greenhouse Gas Management Organization (Public Organization) or TGO, to promote the private and public sectors to understand their own carbon dioxide emissions and to develop plans to reduce such emissions. Also, similar to other countries, tax incentives and tax collections schemes are being developed and will be issued to facilitate the country’s commitments.
 
Below we discuss some of the tax measures Thailand plans to implement when moving towards the goal of carbon neutrality and net zero emissions.
 

What is carbon tax?

Carbon tax is a policy to impose fees on the carbon emissions from the production of goods and provision of services. Its primary purpose is to reduce carbon emissions by increasing the prices carbon fuels, whose combustion is destroying the environment, and incentivizing efforts to make goods and services less carbon-intensive. Moreover, other goals that the carbon tax aims to achieve include promoting the maximum efficiency of energy use, to encourage the use of clean energy instead of carbon fuels, to mitigate climate damage, and to improve the well-being of society and the environment.

Current tax in Thailand imposed on carbon emissions

Currently in Thailand, the Excise Department is imposing excise tax on certain products that cause negative externalities, specifically environmental damage, such as oil, cars and motorcycles, in which the tax rates imposed could vary according to the level of carbon emissions. However, the existing excise tax measures may not reflect all aspects of the carbon tax concept as taxes are only imposed on the carbon-intensive raw materials and finished products that are environmentally harmful, but not on the manufacturing processes that could cause a considerable amount of carbon emissions as well.

Future of carbon tax in Thailand

As a result, in order to achieve the goals Thailand has committed to, and to reflect international standards, the Excise Department has appointed a working committee to study the expansion of carbon-based taxes in the future to cover wider aspects in which carbon tax is defined internationally, including the tax imposed on the carbon emissions of manufacturing processes. Initially, the Excise Department plans to introduce a carbon tax as a part of excise tax, similar to the sugar tax that was successfully implemented in the past.
 
According to recent news and publications, the Excise Department is aiming in the short term to expand the excise tax base to cover more carbon-intensive products, which are considered environmentally harmful, and collect tax based on the level of carbon emissions. For example, the excise tax is currently imposed on the use of oil; therefore, the Excise Department aims to expand the tax base to cover coal and natural gas to make the use of those raw materials subject to excise tax at the same standard as the use of oil.
 
Furthermore, the Excise Department has planned for its middle- and long-term achievements to expand the tax base to cover the manufacturing processes that release considerable amounts of carbon through the so-called Cap and Tax measure. Under this measure, the government may prescribe the maximum amount of carbon emissions for each manufacturing industry and if the manufacturers release carbon emissions exceeding such prescribed level, then the carbon tax will be imposed on the excess. Industries involving steel, cement, fertilizer and aluminum are where the carbon tax is aimed to be first imposed.
 
To achieve such purpose, the Excise Department may have to conduct further studies and coordinate with other government units, such as the TGO, to implement the use of carbon footprint to calculate the amount of carbon that the factories release into the atmosphere, which will significantly benefit the proper exercise of carbon tax collection in the future.

Conclusion

Presently, carbon tax collection in Thailand is in the initial studying process and no concrete policy has yet been determined. However, should the carbon tax be fully implemented, its impact will be significant for both businesses and consumers. It could result in, for example, higher costs of production, an increase of the price of most goods, and substantial changes in consumer expenditure or behavior. It is therefore important to keep track of the government’s carbon tax policy and to see what measures will be used to mitigate the unintended impacts of this new carbon tax and its potential excessive burden on the business operators and consumers.

Author

Peerapan is Head of Healthcare & Life Sciences Industry Group and a corporate and M&A partner in the Bangkok office with specialties in highly regulated industries. Within the Bangkok office, she also co-leads Japan Advisory Group. Peerapan was awarded ‘Client Choice winner’ for Healthcare & Life Sciences 2019 by Lexology. She has been consistently recognized as 'Leading Individual’ in Corporate M&A by Asia Pacific Legal 500 for eight consecutive years (2013-2020).

Author

Panya joined Baker McKenzie in 2002 and became a Partner in 2012. He is currently a partner in the Tax Practice Group. He is also active in the International Commercial & Trade Practice Group and practices in the customs and supply chain areas in particular.

Author

Aek has over 17 years' experience working in international law firms. He joined the Tax Practice Group of Baker McKenzie in 2004, after practicing at another international law firm in Bangkok in the Litigation, International Capital Markets, and Banking & Finance practices.

Author

Nam-Ake Lekfuangfu is a partner of the Labour and Employment practice group in Bangkok. Over 10 years of experience, his extensive legal expertise, combined with insights on industrial knowledge and practices have contributed to him being named a “Next Generation Lawyer for Labour and Employment” in Thailand by Asia Pacific Legal 500 in 2019. Mr. Lekfuangfu was lead lawyer for a wide range of employment matters involving high profile clients. He assists clients on employment and immigration work, ranging from day-to-day advice to complex matters, such as advising on employment trends impacting employers globally, including global mobility, the use of a modern workforce, and addressing the gender pay gap.

Author

Muanjit Chamsilpa is an Environmental Specialist in Baker & McKenzie Limited, Bangkok office.