Finmin plans action against cos evading tax on carbon credit sale

The finance ministry has mined data of Indian companies that have not been paying tax on the income earned by selling their carbon credits or certified emission reductions (CER). These entities are likely to face penal action once a case of tax evasion is established against them. They are like any other company evading taxes and penalties would be imposed, sources in the income tax department said.

Interestingly, some of the entities on the I-T radar which have not paid tax on already redeemed income on carbon credits are listed firms. In the data mining process, the department has prepared a list of all such entities that have accumulated carbon credits and subsequently sold them.

A senior finance ministry official said that scrutiny of the balance sheets of these companies revealed that some were offering the proceeds from sale of carbon credits to the tax department, while many were not.

The department may soon send notices to such companies that have evaded tax. An inventory will be sent across to different formations and field units to keep a close watch on firms which have accumulated CERs and may trade it at a future date.

Companies earn carbon credits by reducing their greenhouse gas emissions. These credits entities can then be sold in the international market to companies in rich countries that require the credits to set off against their reduction targets under the Kyoto Protocol. India, after China, is the biggest generator of certified emission reductions. By 2012, Indian companies are expected to earn more than 600 million CERs through green-tech investments made in at least 1,500 projects, involving capital infusion of more than Rs 1.5 lakh crore. Many of the cement and steel companies in India are among those which have traded their CERs in the international market. Recently, JSW Steel had sold some of its CERs at a rate of euro 13.50 per tonne. The price is likely to rise to euro 20 a tonne by the end of this year as the demand in Europe is likely to rise with the revival of economic activity.

Entities in China and India account for 70% of the total world carbon credit market, which is estimated to be more than $25 billion at present, and as per World Bank estimates may earn developing countries in excess of $100 billion annually by 2050. India has generated some 75 million certified emission reductions so far as compared to China's 210 million. It has an advantage as a developing country to install modern technology that emit less of greenhouse gases. Increasingly, many of the municipal bodies in India have installed waste disposal units that earn them carbon credits, besides industrial units using green technology.