Indian government panel backs higher carbon tax on coal imports

Mar 7, 2024

A panel of officials from Indian ministries has called for a bigger carbon tax on higher quality imported coal while cutting rates for domestic coal, in a bid to slash shipments of the polluting fuel, the coal ministry said on Thursday.

Coal is among India's top five commodity imports by value. Despite surging domestic production, mainly of low-quality coal with high ash content, it has failed to cut back on imports and ranks as the world's second largest importer.

In its report to the coal ministry, the panel said the current carbon tax rate of 400 rupees ($4.83) on every metric ton of coal, regardless of the quality bought, favoured imports and hit sales of domestically mined coal.

The officials, drawn from ministries ranging from power and trade to railways, shipping, mines and steel, said tax should be charged on an ad valorem basis so that it is directly related to coal price and quality, rather than the fixed amount set now.

The panel said the tax should be be adjusted in a "revenue- neutral way" to avoid a loss to the exchequer. India's finance ministry makes final decisions on taxes.

The panel said such "regressive" taxes were also boosting electricity tariffs, as utilities mostly use domestic coal, while others users, such as makers of sponge iron, choose imports instead.

The tax amounted to 3.7% of the total value of shipments during the year ended March 2022, nearly seven times the average levy of 24.8% on purchases of domestic coal, the report said.

"It results in increasing price of the domestic coal having lower calorific value than that of the imported coal having higher calorific value," it added.

India's imports of thermal coal, used to generate power, rose nearly 10% in 2023 to 176 million tons, despite record production by state-run Coal India, which accounts for about 80% of domestic output.

Australia, Indonesia and South Africa are India's biggest suppliers of the fuel.

[The Economic Times]