In Short : A house panel is recommending that the government explore the possibility of deferring carbon tax. This proposal likely reflects concerns or challenges faced by industries or sectors impacted by carbon taxes, suggesting a call for a temporary delay in the implementation of such measures.
In Detail : CBAM entered into a reporting phase from October 1 last year where exporters of seven products including steel, aluminium, cement and fertilizers to the European Union must report carbon emissions at the manufacturing stage.
The parliamentary standing committee on commerce has asked the government to seek the deferment of application of carbon tax by the European Union on small and medium enterprises by at least another three years.
According to the committee report which was tabled in Parliament on Thursday the micro, small and medium enterprises may not have the financial resources to make necessary changes to counter carbon tax that will be implemented through Carbon Border Adjustment Mechanism (CBAM).
CBAM entered into a reporting phase from October 1 last year where exporters of seven products including steel, aluminium, cement and fertilizers to the European Union must report carbon emissions at the manufacturing stage. The taxation on excess carbon emissions at the manufacturing stage will begin from January 2026.
India is already in touch with for a carve out for MSMEs.
The Committee noted that the Indian manufacturers in the MSME sector may not have the financial resources to make necessary changes to counter the CBAM. It recommended a robust mechanism to support and equip MSMEs of the country to counter the adverse effects of CBAM must be implemented on priority basis.
In its hearing, the Stakeholders informed the Committee that once CBAM is implemented, it is likely to have a significant downward impact on India’s exports of iron and steel and aluminium to the EU.
According to a report of the think-tank Global Trade Research Initiative, CBAM would translate into a 20-35 per cent tax on select imports into the EU starting January 1, 2026.
To start with, the carbon tax will only be applicable to bulk commodities and by 2034 it will also be imposed on finished products.
In 2022, India’s 27 per cent exports of iron, steel and aluminium products worth $ 8.2 billion went to the EU.