Iras waives GST for voluntary carbon credits

GOODS and services tax (GST) has been waived on the issuance, transfer and sale of voluntary carbon credits from Wednesday (Nov 23).

Releasing this information on its website, the Inland Revenue Authority of Singapore (Iras) said carbon credits supplied from Wednesday will be treated as “neither a supply of goods nor a supply of services, i.e. an excluded transaction”. Therefore, GST is not chargeable on the consideration received for the issuance, transfer or sale, the authority stated.

This includes tokenised carbon credits, as Iras said digital representations of a carbon credit are covered under the waiver as well. A digital representation of a carbon credit includes a digital image of a carbon credit created using blockchain technology, it said.

The announcement comes after professional services firm KPMG issued a white paper last month urging the government to review and clarify how its GST applies to voluntary carbon credits to foster development of carbon credit markets in the nation.

Authors of the paper, tax partner Mark Addy and principal consultant of indirect tax Gan Hwee Leng, had argued that current exemptions for carbon credits are narrowly defined and exclude significant classes of credits. 

GST exemptions or provisions already exist where carbon credits are integral to the business, such as in the event where an airline is legally required to purchase carbon credits, KPMG explained. An exemption also exists for compliance credits - regulated emission allocations - that are issued by the National Environment Agency.

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They added that crucial differences between carbon credits and currently exempted products make it problematic to simply subsume carbon credits into an existing exemption.

In its update on Wednesday, Iras said its previous position was indeed to charge GST on voluntary carbon credits under “supply of services”. This included credits bought from overseas exchanges or suppliers, which fall within the scope of imported digital services.

As the issuance, transfer or sale of any carbon credit will not be regarded as a “supply” from Wednesday, credits from overseas exchanges or suppliers fall outside the scope of imported services, and will not be subjected to GST as well, Iras stated.

Temasek-backed carbon marketplace Climate Impact X welcomed the move, with its chief executive officer Mikkel Larsen calling it a testament to the government’s support for carbon markets and commitment to establishing Singapore as a carbon services hub.

The exemption will reduce the costs associated with the issuance, transfer and sale of carbon credits, Larsen added. “This could help to lower entry barriers to carbon markets and create greater flexibility, offering an added incentive for companies to go further in their climate mitigation strategies and direct finance towards impactful projects,” he said. 

Larsen also said the importance of carbon markets as a mechanism for supporting the global transition to net zero is recognised by a growing number of companies, who understand that quality credits can complement direct cuts in their own emissions. 

“Far from being a least preferred option or last resort, this is a way for companies to set in place more ambitious targets and take immediate action in addition to – not instead of – decarbonising,” he said.