In a rapidly changing regulatory environment where exporters need to adapt to new measures implemented across multiple jurisdictions, how can Australian businesses adapt? And what tax reforms can businesses expect domestically?
Trade implications for exporters
Businesses have always considered indirect taxes and customs duties in their import and export activity. However, with plastic packaging taxes, and now carbon taxes upon importation on the rise, companies need a strong understanding of what tariffs will be applicable in various countries. Many of these requirements will come into place in 2024, giving ample time to prepare.
The European Union's in principle approved Carbon Border Adjustment Mechanism (CBAM), for instance, is a new border tariff that aims to avoid carbon leakage. This mechanism will require exporters to undertake additional compliance and administrative steps by 1 October 2024, imposing a tax on imports of carbon-intensive products. While disclosure is due to begin later this year, businesses are due to be given a two-year window until 2026 to get data capture right and make any adjustments needed. At that point, trade compliance is pivotal to avoid overpayment, as this will determine the CBAM amount payable.
Beyond the European Union, the UK’s Emissions Trading Scheme aims to cap greenhouse gases emitted and Japan has introduced a carbon levy on fossil fuel importers from 2028. Many other key trading partners are actively considering implementing carbon tax measures – and Australia doesn’t seem far behind them.
How exporters can prepare
To be on the front foot and minimise tax overpayments, Australian exporters need to implement rigorous compliance measures. This means assessing your businesses carbon tax liability by understanding your supply chain, including provenance of goods and where relief of carbon taxes can be leveraged.
Collecting this information can complex, but with the right systems in place, businesses of all sizes will benefit from reduced trade tariffs and systems in place once the Australian policies come into place.
Taking an in-depth look into your supply chains is also an opportunity to consider your sourcing strategy. Provenance can significantly impact your carbon footprint – and using more sustainable suppliers can help avoid high taxation.
Businesses that only trade domestically are also encouraged to put these systems in place. We expect Australia will be consistent with policies around carbon taxes considering the Government’s election promise to reduce emissions. Carbon measures and related reporting obligations could be announced in the May Federal Budget – and if not then, in the months to follow – as Australia will need to manage carbon risks and implement regimes to encourage the transition away from carbon reliance and incentivise investment in Australian businesses in a competitive global landscape.
By preparing early, your business will maintain its market position through improved ESG compliance – an aspect demanded by stakeholders including investors – staying competitive with international goods and supporting potential future expansion overseas.
