Representative image for tax.
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New Delhi: India has reserved the right to retaliate if the UK moves ahead with its plan to impose a carbon tax on domestic goods, a government official said on Thursday.
The India-UK free trade agreement, announced on May 7, has no provision to counter Britain's proposed carbon tax.
The UK government in December 2023 decided to implement its Carbon Border Adjustment Mechanism (CBAM) starting in 2027.
"We have agreed that if the UK will impose a carbon tax, India reserves the right to retaliate," the official said.
The official also said that if India collects such a kind of tax in the country, then Indian industry will not have to pay the tax in the UK.
According to economic think tank GTRI, India's exports worth USD 775 million to the UK may be impacted due to Britain's decision to introduce a carbon tax on products like iron and steel, aluminium, fertiliser and cement, from 2027.
The free trade agreement with the UK has no provisions to counter CBAM, which has the potential to nullify the concessions offered by Britain to India.
The UK, after the European Union (EU), will be the second economy to implement CBAM. It calls it the import carbon pricing mechanism, and it will initially focus on sectors like iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement.
This tax could range from 14-24 per cent of the import value on full phase-out of free allowances under the ETS (Emission Trading System).
During the recent visit to London, Commerce and Industry Minister Piyush Goyal has flagged concerns over this tax and has conveyed that India may consider retaliation if the UK goes ahead with the plan.