How Improved Carbon Tax Affects Businesses in Singapore

In recent years, many countries have begun to take action on climate change. In the process, carbon taxes and other related measures have gained traction to discourage businesses from investing in activities that produce significant greenhouse gas emissions. 

Intending to encourage businesses to adopt climate-friendly practices while raising funds for green initiatives, Singapore introduced the carbon tax in 2019. The Singaporean government furthered its approach to becoming a net-zero carbon city by announcing a revised price trajectory for Southeast Asia’s first carbon tax.

Here are some details about how the current and the revised carbon tax to be implemented affect businesses in Singapore.

What is carbon tax?

A carbon tax is a fee levied on companies for the carbon dioxide they emit. The idea behind a carbon tax is that companies have to pay for their greenhouse gas emissions, and they will have an incentive to reduce their emissions. The proceeds from the carbon tax can be used to fund climate change mitigation efforts.

How does a carbon tax work?

Companies will have to pay taxes based on their carbon footprint. A company’s carbon footprint is defined as the total amount of CO2 emitted during the production process. However, carbon taxes will vary based on the type of company, with different industries having different rates. For example, the electric power industry may be charged a higher rate than the manufacturing industry.

The carbon tax will be levied on large emitters of carbon dioxide (CO2). This includes the following industries: electricity, manufacturing, air and sea transport, chemical and petroleum refining, and offshore oil and gas extraction. The industrial sector accounts for about 80% of CO2 emissions, so the carbon tax will most impact this sector.

The Inclusion of the Current Carbon Tax

Singapore became the first Southeast Asian nation to impose a carbon tax. This scheme provides a broad-based price signal for companies to reduce their emissions while enabling them to take action economically. During this initial phase, it will be SGD 5 per tonne of carbon dioxide equivalent (tCO2e) from 2019 to 2023 to provide emitters enough time to adjust.

The Revised Tax Rate Post-2023

The carbon tax will be increased to SGD 25 per tCO2e in 2024 and 2025, SGD 45 per tCO2e in 2026 and 2027, and SGD 50 to SGD 80 by 2030. This revision indicates a strong price signal and impetus for companies to cut their carbon emissions in line with national climate goals. Singapore plans to remain competitive in a low-carbon future and make the city-state a liveable home for future generations.

Implications to Businesses

Carbon taxes are being implemented increasingly in the drive towards net-zero carbon emissions. It is a relentless shift that businesses have to contend with. This may serve as a challenge for the tax and finance functions of multinational companies. First, this is a new expense that needs to be accounted for in operating costs and margins. Along with overseeing compliance, tax teams must remain in touch with the firm to keep managers informed of how the carbon tax will affect the final prices set for consumers.

Revised carbon tax levels positively shape businesses by enabling new and green investment opportunities (like carbon markets), reviewing new investments in a low-carbon global economy, and improving the energy efficiency of existing investments. Favourably, many companies are already seeing the benefits of investing in cleaner technologies and supply chains with reduced carbon footprints. These firms realise the value not because they stand to benefit from tax credits and grants for things like investment in renewable energy projects.

Reasons to Join the Decarbonisation Campaign

Here are three reasons why you need to get started with your carbon strategy:

  1. Engaging in the carbon market can help unlock and scale investments in cutting-edge decarbonisation technologies. This will put businesses in an excellent position to meet long-term science-based targets or adapt to carbon pricing policies.
  2. Businesses can better protect themselves against price swings by getting involved in the carbon market sooner, especially for nature-based credits.
  3. Businesses will confidently participate in the market when they have a solid grasp of the global drivers and trends and the risks and possibilities they entail.

Transparency via ESG Reports

In response to the growing pressure to reduce greenhouse gas (GHG) emissions from their operations, corporations issue an environmental, social, and governance (ESG) report. Included in this document report is an estimate of the company’s GHG emissions. It may sound good, but this protocol has serious conceptual errors. Some business entities ignore emissions from their supply and distribution chains, while different companies report the same emissions multiple times. Solutions to these defects in the protocol include advancement in emission measurement of environmental engineers, the introduction of blockchain technologies to accounting and auditing, and two centuries worth of progress in financial and cost accounting practices.


The global push toward net-zero emissions by implementing a revised carbon tax is both a challenge and an opportunity for businesses. That’s because it will force companies to make tough decisions, such as submitting environmental, social, and governance (ESG) reports, wherein they would need assistance from an experienced accounting firm in Singapore. When done right, corporate financial reports can serve as a relevant and reliable tool for reflecting the company’s commitment to exemplary environmental performance.

Posted in Accounting, Outsourcing Accounting, Taxation
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