Federal gas tax holiday proposal encounters opposition
The federal gas tax holiday proposal put forth by the Biden administration has encountered opposition this week, while a proposal for an EU carbon border mechanism was approved by the European Parliament.
Despite strong opposition from both sides of the political spectrum, US President Joe Biden called on Congress on Wednesday, June 22, to enact a three-month federal tax holiday on diesel and gasoline in response to rising inflation.
Two levies on each gallon of diesel and gasoline would be suspended for three months under the proposed federal fuel tax holiday. It would try to lower the 18 cents added to the price of gasoline for US drivers and the 24 cent tax on each gallon of diesel.
According to estimates, the proposal would cost the government about $10 billion in lost taxes meant for the highway trust fund, which pays for highway and mass transit spending by the federal government.
8.6 percent is a 40-year high for US inflation, driven by rising food and energy prices internationally. Petrol prices skyrocketed to a high of over $5 per gallon before falling just short of the watershed.
Despite resistance from Republicans and even members of his own Democratic party, President Biden has been eager to offer some relief for hard-hit drivers.
Some people worry that the reduction in fuel prices for consumers may unintentionally increase demand and inflation in the run-up to the pivotal mid-term elections in November.
Since he initially decided against doing so in February, Biden has considered enacting a gas tax holiday more than once.
On the other side of the Atlantic, on Wednesday, June 22, the European Parliament reached an agreement for a carbon border adjustment mechanism and several additional tax reforms that will update the EU's emissions trading system.
A less ambitious emissions trading scheme (ETS) than the Fit for 55 package originally proposed by the European Commission will be the subject of negotiations between the European Council and the Parliament as early as August. Each has a CBAM.
Tax experts claim that the ETS could achieve greater carbon reductions by the same year, even though the Commission's package could reduce greenhouse emissions by 55% by 2030.
The CBAM will take the place of carbon emission permits in 2032, one year later than the Commission initially suggested. Because local climate protection regulations are less stringent, the mechanism will apply higher costs to goods from third-country companies associated with high carbon emissions. This might result in more expensive problems with international trade and supply chains.
Any form of CBAM and other initiatives to reform the EU's ETS in the near future were condemned by the German Chemical Industry Association (VCI). The World Trade Organization (WTO) standards should be reinstated, according to the VCI.
According to the VCI, which emphasized that the CBAM should be delayed due to high energy prices resulting from the Russia-Ukraine war, "the effectiveness of this project for climate protection is highly controversial and a WTO-compliant design is still in the stars."
In order to stabilize the economy and support affordable energy, the VCI recommends suspending short-term plans to reduce coal-fired power or lowering energy taxes. The new CBAM and emissions regulations may also have a significant impact on other European industries.
The emissions reforms are less welcomed than before in light of the high inflation rate and record-high oil prices. If the Council unanimously approves a CBAM as early as 2023, ongoing supply chain bottleneck problems might force businesses to pay more for cross-border trade.
Following the UK government's publication of the Northern Ireland Protocol Bill on June 13, tax experts have urged suppliers of goods from Great Britain to Northern Ireland to halt restructuring plans.
The Northern Ireland Protocol, which established guidelines for the treatment of NI following the UK's exit from the EU, would be nullified by the bill, giving the Conservative government the authority to do so.
“Just pause, don't go ahead and restructure your supply chains, if you're going to,” advised Richard Asquith, CEO of VAT Calc, a UK-based company that performs global VAT/GST reporting and calculations.
He stated that changes over the summer may have an impact on the Northern Ireland Protocol and may eliminate the need for suppliers to restructure or reconsider their business plans. These might include legal actions brought by the EU and challenges to legislation brought in the House of Lords, the upper chamber of Parliament.
On another note, businesses must update their transfer pricing analyses as risk-free rates outperform the US dollar. The London Interbank Offered Rate will end on June 30, 2023.
If they don't, they run the risk of having legal agreements and transactions that conflict.
The new benchmark rate must be included in legacy transactions, and intra-group agreements must be updated. In order to approve the rate, corporations must initiate discussions with tax authorities.
Market participants in the US are anticipated to move away from Libor and adopt the secured overnight financing rate data.
By converting to an RFR, TP teams will also need to account for a risk premium, which needs to be effectively documented and shared with any participating subsidiaries. It will also be necessary to incorporate the fallback language.
Failure to do so could put TP teams in danger if transaction pricing differs from the terms of a legal contract, leading to a mismatch.
If not updated, intra-company loans could be subject to a big risk.
Corporations may be able to refinance their existing transactions as a result of the departure from Libor.
By fLEXI tEAM