India mulling domestic tax options to deal with EU's carbon tax

India mulling domestic tax options to deal with EU's carbon tax

Commerce and Industry Minister Piyush Goyal on November 2 indicated that India is mulling a domestic tax option on certain sectors and using that levy to support the green energy transition to deal with the European Union's carbon tax. He also said the European Union's decision to impose carbon tax on certain sectors like steel is "ill-conceived" and it would impact the manufacturing sector of the EU.

"I think in one of those days they (EU) will themselves realise and they will have to drop this CBAM… it is ill-conceived and has not addressed the entire issue correctly and fairly," Goyal said here at a function. They will have to give different values to the less-developed and developing countries and try to level the playing field in smarter ways than trying to hurt us or our exports, the minister said.

The EU has decided to impose Carbon Border Adjustment Mechanism (CBAM), or carbon tax, which will come into effect from January 1, 2026, but from October this year, domestic companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products, will have to share data with regard to carbon emissions with the EU. India has strongly criticised the move and is in dialogue with the EU on the issue.

"We will find a solution around a domestic tax to take care of equating with European taxes on carbon emissions "So, if we collect the tax in India itself and use it for our green energy transition, which will indirectly help the same companies that are exporters as they transition to cleaner energies and bring down their carbon footprint, there will be no additional CBAM," Goyal said.

He added that such taxes sought to be imposed are a matter of concern because there is a lot of uncertainty around these developments. "Of course we are in dialogue with the EU and their leadership to understand more about it and see how this will play out," he said, assuring the industry that they are in safe hands and the government is seized of the issue fully.

He said the unfair part is that how can carbon be priced the same in India as it is priced in Europe. "So, we are still in negotiation on that aspect but as long as we keep the taxes at home (and) utilise it for our own green energy transition, I think it would not have an uncompetitive edge in our exports to Europe," the minister said.