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The Chartered Institute of Taxation (CIOT) has welcomed a proposed tax on greenhouse gases produced in the manufacture of energy intensive goods imported to the UK.
In response to the UK carbon border adjustment mechanism (CBAM) consultation, the CIOT and Association of Taxation Technicians emphasised the importance of supporting climate objectives whilst “balancing the administrative burden for businesses”.
A proposed UK CBAM would mean certain goods arriving in the UK from 2027 may be subject to a new tax charge, to level the playing field with domestic production and to encourage greener manufacturing.
The proposed CBAM would impose a tax charge on seven types of goods arriving in the UK, including fertilisers, cement and aluminium, based on their embedded greenhouse gas emissions.
Affected importers will either report those emissions based on ‘default values’ set by the government for each commodity type, or by calculating the actual emissions produced in creating the goods.
Mark Feldman, co-chair of the joint CIOT/ATT Climate Change Working Group, said: “Most importers affected are likely to initially use default values, at least while they work out how to measure the actual emissions produced in their supply chains.
“But if the government sets the default values too low, importers may decide it’s cheaper and easier to pay the CBAM charge based on default values than it is to either calculate the actual emissions produced or to decarbonise their supply chain, so getting those default values right will be critical to incentivise businesses to move away from carbon-intensive imports.”
He added: “The CBAM compliance burden is likely to hit small businesses the hardest. Therefore, it’s vital the government minimises the impact if the proposal proceeds.”
The CIOT would also like the government to provide certainty to businesses on how the CBAM will operate for goods arriving into Northern Ireland, as it was not covered by the Windsor Framework.
