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Parliament panel recommends govt to seek 3-year deferment on EU carbon tax for MSMEs

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Taxation 08 Feb 2024 05:56 PM IST PTI

A parliamentary panel has suggested that the Indian government should seek a three-year deferment on the imposition of the European Union's (EU) carbon tax, known as the carbon border adjustment mechanism (CBAM), on Micro, Small, and Medium Enterprises (MSMEs) in the engineering sector. The panel's report emphasises the potential financial strain on domestic manufacturers due to this duty and recommends developing robust mechanisms to support MSMEs in countering the adverse effects of CBAM. 

The EU plans to implement the carbon tax, CBAM, from January 1, 2026, targeting seven carbon-intensive sectors, including steel, cement, and fertilisers, with engineering goods also falling under its purview. The parliamentary standing committee on commerce's report, titled "Comprehensive Strategy to Map Major Products and Countries to Maximize Exports and Minimize Imports," underscores the need for India to engage with the highest levels of the US and EU to address additional tariffs and non-tariff barriers like CBAM. 

Furthermore, the report highlights the importance of engaging with the EU regarding deforestation regulations that could potentially impact India's coffee exports, which constitute a significant portion of the market. It suggests active engagement to ensure that the implementation of these regulations does not adversely affect coffee exports. In addition to addressing concerns related to coffee exports, the report recommends proactive steps to diversify diamond sourcing for the gems and jewellery sector, reduce dependency on specific countries, and include the iron and steel sectors under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme. The committee also urges the government to consider increasing interest rates under the Interest Equalization Scheme for MSME exporters to alleviate the burden caused by recent rate hikes. Lastly, the report emphasises the need for policy interventions, export promotion schemes compliant with international trade policies, and a robust logistics infrastructure to promote exports. It suggests formulating a focused strategy for trade creation and diversification to enhance India's global trade share.