Analysis of the accounting and Tax Treatment of Carbon Credits in Paraguay in the year 2022

Abstract

The global alert for the adverse effects of human actions on the environment promotes enormous political and scientific efforts focused on mitigating these consequences through Clean Development Mechanism (CDM) projects. The Kyoto Protocol is the global initiative that represents the most outstanding project of this type of impulse and at the same time is the framework for the emergence of what is related to the carbon credit market. Paraguay is a pioneer in the issuance of carbon credits globally and has optimal environmental resources for the development of Voluntary Carbon Markets (MVC). However, Paraguay lacks structured scenarios and specific regulations for environmental and tax support. This study aims to provide an analysis of the fiscal accounting and tax application of carbon credits in Paraguay during the year 2022. After an interpretation of the Financial Reporting Standards (NIF) to understand the accounting panorama, the documentary qualitative methodology when evaluating the experiences of CDM projects in other Latin American countries, and particularly, the Brazilian, Colombian, Chilean and Mexican tax regime. Finally, the tax identification for carbon credits in Paraguay during the year 2022 is provided, which is supported by substantial comments from renowned national experts. In the event that carbon credits are treated as securities in the future, their disposal will be exempt from Value Added Tax (VAT). For income purposes, payments received from the sale of carbon credits will constitute taxable income for corporate income tax (IRE)