Draft Income Tax Amendment Bill – Commentary

SARS published an explanatory document of the Draft Income Tax Amendment Bill on 30 July 2019.

This three page document summarises two aspects of the Draft Bill:

REPEAL OF THE TAX EXEMPTION FOR CERTIFIED EMISSION REDUCTIONS

“To avoid a double benefit scenario, where the same emissions reductions lead to both an income tax exemption under section 12K of the Act and a lower carbon tax liability for a taxpayer under the Carbon TaxAct, it is proposed that the tax exemption for certified emission reduction units is repealed. It is proposed that the tax exemption for certified emission reductions is repealed to become effective from the date of introduction of the carbon tax.”

The repeal came into effect on 1 June 2019.

In the 2019 Budget Review it was announced that Government would repeal the tax exemption for certified emission reductions provision of section 12K of the Act on 1 June 2019. Under the Carbon Tax Act, No 15 of 2019 (“Carbon Tax Act”), Government allows taxpayers to reduce their carbon tax liability by investing in low carbon projects developed under international programmes or standards such as the CDM, Gold Standard and Verified Carbon Standard. Taxpayers will now qualify for a carbon offset allowance of up to a maximum of 10 per cent of its total greenhouse gas emissions under the Carbon Tax Act.

EXTENSION OF THE ENERGY EFFICIENCY SAVINGS TAX INCENTIVE

To cushion households and energy-intensive industries from potential adverse impacts after the introduction of the Carbon Tax Act, and to help industries transition to lower carbon, energy-efficient practices, Government had agreed to extend the duration of the incentive to be aligned with the first phase of the carbon tax, ending 31 December 2022. It is proposed that the energy efficiency savings incentive be extended to allow for energy efficiency savings deductions from the income of any person carrying on any trade in respect of the year of assessment ending before 1 January 2023.

The carbon tax came into effect on 1 June 2019 and during the stakeholder consultations on the carbon tax, some stakeholders were of the view that the energy efficiency savings tax incentive should be extended beyond 2020 to ensure that there is long term policy certainty on revenue recycling commitments made under the carbon tax. The energy efficiency savings tax incentive has a sunset provision where only energy efficiency savings generated prior to the year of assessment ending before 1 January 2020 will be eligible to qualify for the incentive.

The proposed amendment will come into effect on 1 January 2020.

This article is provided for information only and does not constitute the provision of professional advice of any kind.

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