Carbon tax in SA ‘will raise costs for heavy industries’
25 February 2013
Posted by: SAIT Technical
By Edward West (Business Day)
say that the introduction of carbon tax will have a great effect on the
cost structures of SA's smokestack industries. Carbon tax was suggested
by government seven years ago. A planned commencement for the
2013-14 tax year was mentioned in last year’s budget speech. A vehicle
emissions tax was
introduced in 2010.
THE introduction of a carbon tax is
likely to have a great effect on the cost structures of South Africa’s
smokestack industries, say analysts. The government has provided little detail
about the mooted carbon tax, but some tax and legal professionals believe a
further announcement is likely in the first half of this year, if not in this
The government first suggested the
tax seven years ago. The idea was further expounded in a 2010 discussion
document, titled Reducing Greenhouse Gas Emissions: The Carbon Tax Option,
which proposed an impost of R120 per ton of carbon. By the time of last year’s
budget speech the idea for the tax had become more complex. It then included a
proposal to use offsets to comply with a percentage of tax liability, and
breaks for trade-exposed sectors.
A planned commencement for the
2013-14 tax year was mentioned in last year’s budget speech.
The carbon tax joins a list of
similar taxes that have already been implemented.
A vehicle emissions tax was
introduced in 2010.
South Africa, with its vast coal
reserves, is among the most intensive emitters of greenhouse gases in the
world. It has voluntarily committed to reducing carbon emissions 34% by 2020.
Henk Sa, MD of the carbon
consultancy, management and financing firm EcoMetrix Africa, says if the tax is
introduced at a rate of R120 per ton of carbon emission, Eskom would be by far
the biggest contributor at an estimated R11bn per year.
This is close to the R13.2bn profit
it made in the year to March 31 2012.
The power utility contributes the
biggest share in the R12bn-R17bn per year the state hopes to gain from the tax,
says Mr Sa.
Sasol’s contribution to the tax
would come in at about R3bn a year. This represents 12% of its profit for the
year to June 30 2012. One of the Durban Chamber of Commerce and Industry’s main
criticisms of the tax is that the government will be the highest payer, and a "revolving
door” on the payment of tax does not make sense.
Exempting state operations from the
tax will negate the effect of the tax, given its aim of reducing emissions.
Another criticism business has
levelled against the carbon tax is the absence of clarity on the monitoring,
reporting and verification. Edward Nathan Sonnenbergs (ENS) environmental
department senior associate Andrew Gilder says it is likely that a "small
industry” will emerge with the introduction of the carbon tax. The services it
will render including auditing, consulting, carbon emission control, tax
services and advice. This will present additional costs.
Mr Gilder says questions that the
government needs to answer include how emission verification will be done. Will
additional staff be employed, will an independent company be contracted for the
work or will there be a verification authority?
Environmental issues can no longer
be viewed as a "like to have” or a "reluctant spend”, Mr Gilder says. This is
because of the direct financial impact on business of environmental
considerations. Carbon emission monitoring is already being done at many
ENS executive Mansoor Parker says
there are a range of other tax considerations that might arise with the
introduction of carbon tax for which there are no clear answers as yet. Carbon
reduction or energy renewal equipment is costly.
The question is then whether it
would be possible for companies to claim accelerated depreciation allowances
for new renewal energy equipment or capacity, Mr Parker says.
Another question is how companies
will be able to use carbon credits against their carbon tax liabilities.
Would companies, for example, be
able to qualify for the 150% research and development tax incentive if they did
research into carbon sequestration?
The failure by local and provincial
authorities to properly monitor the existing air quality legislation is another
The Durban Chamber of Commerce and
Industry argues that too little thought has been given to the use of the
revenue from the tax and that a clear plan should be presented on how the it
will be spent.
This is important because there is
little information from the government on how much is being raised from other
environmental taxes such as the electricity generation and fuel levies.
Further, it is not known how existing levies are spent.
Norton Rose’s head of tax, Andrew
Wellsted, says the government’s silence on the introduction of carbon tax
suggests it may have to delay its implementation.
Ross Robertson, associate director
at Norton Rose, says the silence on the carbon tax may mean a realisation of
the complexity of introducing and administering such a tax.
However, it will be difficult to say
nothing about such an important topic during this week’s budget speech.