The Carbon Tax Act

Updated info for the Carbon Tax Act

Back in May 2019 the Carbon Tax Act Number 15 of 2019 was published in Gazette #42483 and took effect on 01 June 2019.

In terms of section 19(c) of the Carbon Tax Act, the Carbon Offsets Regulation was gazetted on Friday 29 November 2019 (Gazette No. 42873).

The National Treasury has published for public comment two further sets of regulations, namely Draft Regulations for the Trade Exposure Allowance for purposes of section 10 and Draft Regulations for the Greenhouse Gas (GHG) Emissions Intensity Benchmarks for purposes of section 11 in terms of section 19(b) and (a) of the Act, respectively.

The National Treasury will ensure that the final regulations are gazetted by the first quarter of 2020 to be aligned with the greenhouse emissions reporting period of the Department of Environment, Forestry and Fisheries.

To ensure a cost effective transition, the design of the tax provides for the recycling of revenues through the electricity generation levy credit and energy efficiency savings tax incentive, and significant tax free-allowances of up to 95 per cent of the total greenhouse gas emissions to firms, consisting of a basic tax free allowance of 60 per cent for direct, scope 1 emissions and allowances for sectors that are trade exposed up to a maximum of 10 per cent and a performance allowance up to a maximum of 5 per cent.

The Carbon Offset Regulations was developed jointly by the National Treasury, the
Department of Minerals Resources and Energy and the Department of Environment, Forestry and Fisheries. It outlines the eligibility criteria for offset projects and sets out the procedure for claiming the offset allowance. Companies are allowed to use carbon offsets of either 5 or 10 per cent of their total GHG (greenhouse gas) emissions to reduce their tax liability.

The following amendments were made to the gazetted regulations:

Inclusion of renewable energy
• Eligibility of electrical efficiency projects
• Clarification of eligible projects and the use of credits generated prior to the implementation of the carbon tax
• Administration of the carbon offsets
• Framework for development of local standards
• Other Technical Amendments

Section 10 of the Carbon Tax Act sets out the methodology for calculating the trade intensity of a sector which informs the level of the trade exposure allowance that a sector or sub-sector will qualify for, as determined by the Minister of Finance by Regulation.

Section 11 of the Carbon Tax Act sets out the formula to be used by taxpayers to calculate the applicable performance allowance. For a tax period, taxpayers that perform better than an approved sector or sub-sector emission intensity benchmarks will qualify for a performance allowance.

Written comments on the 2019 Draft Regulations must be submitted to by close of business on 17 January 2020.

Ever wondered how the carbon tax is calculated? Refer to the calculation below.

There is no doubt that professional technical and tax advice will be required.

The first carbon tax period is from 01 June 2019 to 31 December 2019. Calendar year periods follow thereafter with annual payments due in July of the following year.

The carbon tax rate will increase by CPI + 2% annually until 2022 and by CPI thereafter.

It is important that businesses assess their readiness for the carbon tax and evaluate the impact of the allowances and incentives as this form of tax will remain a factor to cater for.

The South African Government’s view on this matter is clear as per the Carbon Tax Act’s wording in the Preamble (extract below and underlined words our emphasis):

…it has also become necessary to make a contribution to the global effort to stabilise greenhouse gas concentrations in the atmosphere at a level that avoids dangerous anthropogenic interference with the climate system within a time-frame that enables economic, social and environmental development to proceed in a sustainable manner;

and since the costs of remedying pollution, environmental degradation and
consequent adverse health effects and of preventing, controlling or minimising further pollution, environmental damage or adverse health effects must be paid for by those responsible for harming the environment (the polluter pays principle);

and since this package of measures will be achieved by the deployment of a range of measures to support the system of desired emissions reduction outcomes, including the appropriate pricing of carbon and economic incentives, as well as the use of emissions offsets;

and since government is of the view that imposing a tax on greenhouse gas
emissions and concomitant measures such as providing tax incentives for rewarding the efficient use of energy will provide appropriate price signals to help nudge the economy towards a more sustainable growth path

Author Craig Tonkin

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