What is a Carbon Tax?
A carbon tax is a government-imposed levy on businesses and organizations whose activities generate greenhouse gas emissions that exceed a specified baseline. This tax is based on the volume of carbon emissions produced throughout the entire production and delivery process and covers gases such as carbon dioxide, methane, nitrous oxide, and various fluorinated gases.
Activities subject to the carbon tax include electricity generation, wastewater treatment, waste management, transportation reliant on fossil fuels, deforestation linked to raw material sourcing, and the use of industrial machinery, among others. By implementing a carbon tax, governments aim to incentivize businesses to adopt more sustainable practices, ultimately contributing to the reduction of greenhouse gas emissions and fostering environmental responsibility.
Why is a Carbon Tax Important for Thailand?
In 2016, Thailand ranked as the 20th largest emitter of carbon dioxide globally, responsible for 0.90% of worldwide emissions, totaling 327 million metric tons (mtCO₂) that year. This statistic underscored significant challenges for the country’s environmental conservation efforts. In response, Thailand took a proactive step in 2022, becoming the second country in Southeast Asia, after Singapore, to implement a carbon tax regime. This commitment highlights Thailand’s dedication to environmental stewardship and addressing the pressing issue of climate change.
How is the Carbon Tax Calculated and Regulated in Thailand?
Thailand’s carbon tax policy is guided by the “Polluter-Pays Principle,” a framework endorsed by the Organization for Economic Co-operation and Development (OECD), which holds that entities responsible for emissions are accountable for their tax obligations. This principle has been widely adopted across various countries.
Tax collection in Thailand is categorized into two main types: direct emissions from production and indirect emissions from consumption.
✓ Direct Emissions from Production include activities such as:
⦾ Electricity generation using fossil fuels
⦾ Operation of machinery in manufacturing
⦾ Emissions from fuel combustion in vehicles and industrial processes
✓ Indirect Emissions from Consumption are associated with the purchase of products whose production and delivery processes contribute to overall emissions, such as consumer goods like oil, gas, coal, and vehicles.
Through these mechanisms, Thailand aims to foster accountability and encourage sustainable practices among both businesses and consumers.
Current Carbon Tax Implementation
In 2017, the Thai government began collecting excise tax on automobiles through the Excise Act B.E. 2560 (2017). Subsequently, in 2022, the Ministerial Regulation Prescribing the Excise Tariff Rate (No.23) B.E. 2565 was published in the government gazette, establishing the carbon tax rate. Since then, a series of regulations have been enacted to adapt to Thailand’s evolving socio-economic landscape.
A significant advancement occurred in 2023 as Thailand recovered from the global pandemic. The Ministerial Regulation Prescribing the Excise Tariff Rate (No.37) B.E. 2566 (2023) extended the carbon tax reduction for eco-friendly vehicles by an additional two years, reflecting the government’s commitment to promoting sustainable transportation while bolstering economic resilience.
Future of Carbon Tax in Thailand
The excise tax on automobiles marks only the beginning of Thailand’s efforts to utilize carbon taxation to achieve its environmental objectives. The Draft Climate Change Act, which concluded its public hearing on April 5, 2024, is currently under review. This legislation introduces comprehensive regulations, measures, and guidelines related to carbon tax, outlined in Chapter 9 (Carbon Tax System), specifically in Sections 99-112.
The draft legislation includes the following key provisions:
✓ Part 1: Carbon tax and fees
✓ Part 2: Tax payment and penalties
✓ Part 3: Tax deductions and exemptions
✓ Part 4: Tax refunds
✓ Part 5: Income management
✓ Part 6: Appeals
Additionally, the excise tax on automobiles will transition from an indirect assessment based on cylinder capacity to a direct assessment based on carbon emissions, with specific rates to be enforced.
Figure. Tax Rates Based on Carbon Emissions.
The enhanced carbon tax framework is expected to be introduced as early as fiscal year 2025, aligning with the Cross-Border Adjustment Mechanism (CBAM) implementation, which is scheduled for 2026. The proposed central tax rate currently stands at THB 200 per ton of carbon dioxide emitted, which is significantly lower than rates under the European Union’s Emissions Trading System (ETS) and Singapore’s carbon tax framework.
Impact of Carbon Tax on Thailand
Initially, the carbon tax implementation is not expected to have a major impact on Thai citizens due to the existing tax collection framework. The current excise tax on automobiles, which will be linked to carbon emissions, will facilitate the conversion of the excise tax into a carbon tax liability. Moreover, the excise tax already imposed on fossil fuels will be integrated into the carbon tax system, reducing complexity and avoiding additional burdens on consumers and producers.
The revenue generated from the carbon tax may be used to offset fees associated with the CBAM, helping Thai businesses avoid double taxation. Payments made under the carbon tax within the mandatory market can be credited toward CBAM fees, which will commence during the initial phase in 2026.
However, the carbon tax system will introduce new responsibilities and obligations for businesses, requiring them to adapt to maintain profitability. The tax liability will be determined by each company’s emission levels, potentially raising operational costs. Consequently, businesses may need to prioritize reducing greenhouse gas emissions during production to mitigate these costs, which could impact existing efficiency and productivity systems.