Carbon Tax in Singapore: What is the Rate and Who Must Pay?

Singapore was the first country in Southeast Asia to introduce a carbon tax, which is regulated under the Carbon Pricing Act. The move was taken in a bid to combat the effects of global warming, as Singapore joins the ranks of about 45 other countries (as of 2022) that have implemented a national carbon tax system.

To address the ever-changing global climate situation, the national carbon tax policy was subsequently revised, as announced in the Singapore Budget 2022 – some of the changes will be discussed in a later section of this article.

If you own a corporation operating in Singapore and are wondering whether you are liable to pay carbon tax, read on to find out more. This article will cover:

• What is carbon tax
• Who must pay carbon tax in Singapore
• The carbon tax rate in Singapore
• The obligations of carbon emitters (taxable facilities) in Singapore
• The deregistration of taxable facilities

What is Carbon Tax?

Carbon taxes are fees levied on certain businesses that burn carbon-based fuels and produce carbon dioxide through their operations.

The purpose of implementing a policy of carbon taxation is generally to reduce the effects of environmental pollution by reducing the output of greenhouse gases and carbon dioxide. This is achieved through creating financial disincentives for businesses to produce large quantities of carbon dioxide in the course of their operations – in effect, the more a business pollutes, the more fees it has to pay and vice versa.

Just like any other form of taxes, the revenue generated from carbon taxes is collected by the tax authorities, and the government can decide what to do with the generated revenue. In Singapore, the government has shared that carbon tax revenue would be used to support the country’s decarbonisation efforts and the transition to a green economy, as well as to mitigate the impact of carbon tax on businesses and households.

Who Must Pay Carbon Tax in Singapore?

Singapore implemented a carbon tax policy on 1 January 2019. Under this carbon tax policy, persons operating business facilities that produce an annual total amount of reckonable Greenhouse Gas (GHG) emissions with a carbon dioxide equivalence of 25,000 tCO2e (tonnes of carbon dioxide equivalent) or more are liable to pay carbon tax.

To break this down further:

• Business facilities refer to sites at which activities involving the emission of greenhouse gases are carried out; and
• GHGs refer to gases like carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, nitrogen trifluoride, and certain hydrofluorocarbons and perfluorocarbon. Within the broader category of GHG emissions, there are:
  • Reckonable GHG emissions;
  • Non-reckonable GHG emissions; and
  • Excluded GHG emissions.

This distinction is important to note because only reckonable GHG emissions count towards the 25,000 tCO2e emissions threshold. 

The main criterion that distinguishes reckonable GHG emissions from the other two categories of GHG emissions is that:

• Reckonable GHG emissions are direct emissions, whereas
• Non-reckonable GHG emissions are emissions produced in the course of performing other specified business operations, and
• Excluded GHG emissions are indirect emissions.

Direct emissions are emissions produced and released at the business facility itself. On the other hand, indirect emissions are emissions produced and released at other sources but as a consequence of the activities at the business facility/of the business.

To illustrate, emissions from fuel combustion would clearly be categorised as direct emissions. On the other hand, emissions produced from electricity consumption by a business facility would be indirect emissions, as the emission is produced and released as a consequence of the electricity usage at the business facility.

As mentioned above, non-reckonable GHG emissions are emissions produced in the course of performing other specified business operations. Such circumstances include:

• Nitrogen trifluoride emitted in any circumstances;
• Sulphur hexafluoride emitted in the course of manufacturing, installing, using or disposing of any electrical equipment; and
• Any greenhouse gas emitted in the course of using any fire protection equipment.

More instances of non-reckonable GHG emissions can be found here.

Lastly, examples of excluded GHG emissions include GHGs that are emitted in the course of using any vehicle to transport persons or goods, or that are emitted in the course of carrying out agriculture, forestry and other land use activities.

Reportable vs taxable facilities

If you operate a business facility that produces reckonable GHG emissions with a total carbon dioxide equivalence of 25,000 tCO2e or more annually, the responsibility is on you to register your business facility as a taxable facility. On the other hand, if your business facility produces reckonable GHG emissions with a total carbon dioxide equivalence of 2,000 tCO2e or more annually, it will only have to be registered as a reportable facility.

The chief difference between the two is that taxable facilities are liable for carbon tax, while reportable facilities are not. However, there are also differences in the reporting requirements. Both reportable and taxable facilities have to report their emissions annually, but reportable facilities only have to submit an annual Emissions Report whereas taxable facilities have to submit both an annual Emissions Report (which has to be verified) and an annual Monitoring Plan.

A Monitoring Plan is a document that identifies and describes the taxable facility’s GHG emission sources and streams, emissions quantification methods and quality management framework.

In contrast, an Emissions Report is a report containing information on the taxable/reportable facility’s activity data, computation for each GHG emission, and the total GHG emissions. For taxable facilities, this Emissions Report has to be verified, which means that it has to be accompanied by a report by an accredited external auditor who verified the Emissions Report.

You have to register your business facility and fulfil your annual reporting requirements via the Emissions Data Monitoring and Analysis (EDMA) system, which can be accessed here using your SingPass.

Exemptions to paying carbon tax

While there are no stated exemptions to the carbon tax policy, the Minister for Sustainability and the Environment may exempt any or any class or description of business facility or persons from having to pay carbon tax.

Additionally, the National Environment Agency (NEA) and the Minister also have the power to give any person any relief or remission from any carbon tax payment for which the person is liable.

What is the Carbon Tax Rate in Singapore?

The current carbon tax rate in Singapore is $5 per tCO2e. The amount of carbon tax liability can be calculated by multiplying the carbon dioxide equivalence of the total amount of reckonable GHG emissions (rounded up to the nearest metric tonne) with the carbon tax rate.

For example, a business facility that produces 39,999.6 tCO2e of reckonable GHG emissions in a year will be charged $200,000 (40,000 tCO2e x $5/tCO2e) of carbon tax for that period.

That said, the current carbon tax rate of $5 per tCO2e will continue to apply only until 2023. In line with Singapore’s goal of bringing forward its target of reaching net-zero GHG emissions by or around 2050, the government announced in the Singapore Budget 2022 that the carbon tax rate will be raised in steps. The planned increases are as follows:

• Now to 2023: $5 per tCO2e
• 2024 and 2025: $25 per tCO2e
• 2026 and 2027: $45 per tCO2e
• By 2030: $50 to $80 per tCO2e

Obligations of Carbon Emitters (Taxable Facilities) in Singapore

The primary obligation for persons operating taxable facilities in Singapore is to pay the carbon tax. The tax for a reporting period must generally be paid:

• By 30 September of the year immediately following the reporting period; or
• Within 30 days after the date of service of the notice of assessment, whichever is later.

The payment may be made either by surrendering carbon credits, or through the credit registry account to which the tax is charged. Carbon credits are credits that businesses can purchase. Each carbon credit represents one tonne of emissions, so buyers of the credits can offset this amount from their total emissions.

The idea is that if you find it difficult to reduce your carbon emissions, you can purchase credits from other businesses, and they will, in effect, reduce emissions on your behalf. The carbon credits purchased will be credited into your credit registry account, from which the carbon tax can be paid.

If a person fails to make full payment of the tax within the time specified, he/she will be liable to pay the following:

• The tax that remains unpaid;
• A penalty of 5% of the amount of tax assessed and remaining unpaid; and
• If the amount of tax remaining unpaid is not paid within 60 days of the 5% penalty, an additional penalty of 1% of the amount of tax assessed and remaining unpaid is payable for each completed month that the tax remains unpaid. However, this additional penalty cannot exceed a figure that is three times the amount of tax remaining unpaid in total.

Apart from paying the carbon tax, it is mandatory for persons operating taxable facilities in Singapore to do a number of other things. The table below sets out these obligations and their corresponding penalties for non-compliance:

Owners of taxable facilities also have to appoint at least one GHG manager to be responsible for preparing and submitting the Monitoring Plan and Emissions Report, and a designated representative who is responsible for managing the credit registry account.

Deregistration of Taxable Facilities

If you are operating a registered taxable facility, you can apply to the NEA to deregister the facility in the following situations:

• When you stop having operational control over the facility or, in other words, if you no longer have the authority to introduce and implement operating policies, health and safety policies, and environmental policies at the facility;
• The total amount of reckonable GHG emissions does not meet the yearly 25,000 tCO2e threshold for three consecutive years; or
• Where any modification to any work process at the facility is completed such that the total amount of reckonable GHG emissions does not meet the yearly 25,000 tCO2e threshold, and is unlikely to hit the threshold for the next two years.

An application for deregistration must be made to NEA via the EDMA system. The application must identify the applicant and the business facility, and include any information required by NEA to assess the application.

Such information can consist of details and documents in support of your basis for deregistering the facility in whichever of the three situations above. For example, if you are seeking deregistration for ceasing to operate the facility, you should provide an explanation of the basis on which you have ceased having operational control over the business facility.

Alternatively, if you are seeking deregistration under the second situation, then you should provide your business facility’s emissions report for each of the 3 consecutive years prior to the application for deregistration.

In the event that you are applying for deregistration because you stopped having operational control over the facility, you must give NEA advance notice in writing at least 45 days in advance of the date you stop operating the facility.

If your application for deregistration as a taxable facility is accepted, you will no longer be liable to pay carbon taxes or to fulfil the annual carbon emissions reporting requirements. It is important to note, however, that if your business facility still qualifies as a reportable facility, the deregistration will only be for your status as a taxable facility. You will still be liable, as a reportable facility, to fulfil the reporting requirements.

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In sum, persons operating business facilities that produce reckonable GHG emissions with a total annual carbon dioxide equivalence of 25,000 tCO2e or more are liable to pay carbon tax in Singapore.

If you think that your business facility fits this description, you may wish to consult a corporate services firm on how you can ensure compliance with the regulations surrounding the payment of carbon taxes. A corporate services firm can advise you on whether you need to register your business facility as a reportable or taxable facility, and can even help you with the registration process. The same goes for the deregistration process, which has its own set of conditions and procedure.

The corporate services firm can also assist the GHG manager with preparing the Emissions Reports and Monitoring Plans, which have to be submitted by a taxable facility annually, and ensure that you are paying the correct amount of carbon tax within the timelines for doing so.

You may get in touch with a corporate services firm here