The Excise Department of Thailand plans to impose a carbon tax as a mandatory mechanism to reduce the impact of climate change, enabling investors to use the tax levied to deduct carbon border adjustment mechanism (CBAM) fees.
The mandatory carbon tax can be used to reduce CBAM fees that the EU will charge on the import of goods to the EU in 2026, benefiting exporters at the early stage.
It is expected that Thailand’s carbon tax can be enforced as early as fiscal year 2025 (October 2024) to align with the CBAM fee collection in 2026. Meanwhile, the Climate Change Act, which will establish a mandatory carbon pricing mechanism in the form of an Emission Trading Scheme (ETS), is expected to come into effect in 2029.
Therefore, at the initial stage, it will be beneficial to implement the carbon tax by converting existing excise taxes already linked to carbon dioxide emissions, such as the gasoline tax and automobile tax, into a carbon tax format. This approach avoids increasing the tax burden on citizens and benefits exporters while awaiting the mandatory carbon pricing mechanism from the Climate Change Act at the late stage. The proposed median price is THB200 per ton of carbon dioxide, which is lower than the EU Emissions Trading System (EU ETS) and Singapore’s carbon tax at approximately THB2,700 and THB700 per ton of carbon dioxide, respectively.
KResearch views that having the mandatory carbon pricing mechanism will help Thai entrepreneurs exporting to the EU or countries with a cross border carbon adjustment mechanism measure, to reduce fees payable to countries implementing such measures.
The impact can be divided into 2 stages:
- At the early stage: Exporters use the carbon tax to deduct CBAM fees without any additional domestic tax burden, as excise taxes are converted to the carbon tax before the Climate Change Act comes into force. The government should establish a fund mechanism to use such revenue to support entrepreneurs transitioning to clean energy.
- At the late stage: After the Climate Change Act comes into force, an Emission Trading Scheme will be implemented and carbon tax rates will be set for previously untaxed areas. This will affect costs of domestic producers in industries that emit greenhouse gases, which aligns with the context of implementing global environmental measures.
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