Draft Carbon Tax Bill – legalese meets science speak
26 January 2016
Posted by: Authors: Betsie Strydom and Graham Crocker
Authors: Betsie Strydom and Graham Crocker (Bowman
the carbon tax is and how it will affect you
The Draft Carbon Tax Bill (the "Draft Bill”) proposes a
pollution tax, known as a carbon tax, which is set to come into
operation on 1 January 2017. Carbon tax will be imposed on
persons who conduct various activities in the manufacturing, construction,
mining and transport sectors. This tax will come into effect in a
phased manner, with the first phase commencing on 1 January 2017 and
running to 1 January 2020.
Carbon tax is part of the implementation of government policy
on climate change and according to a Media Relea by National Treasury it,
"seeks to price carbon by obliging the polluter to internalise the
external costs of emitting carbon”, in other words, the polluter pays.
It is proposed that the carbon tax will apply to all
sectors, but the agriculture forestry and other land use (AFOLU) and waste
sectors will be excluded due to measurement difficulties during the first phase
i.e. 1 January 2017 to 1 January 2020.
Section 3 of the Draft Bill provides that the persons who are subject to
the carbon tax are those persons who conduct the targeted
activities listed in the Government Notice issued in terms of section 29(1) of
the National Environment Management: Air Quality Act, 2004.
This will include persons active in:
- Energy industries,
such as electricity and heat production, and petroleum refineries;
- Manufacturing industries
and construction (particularly chemicals);
- Road transport, railways and waterborne
- Coal mining, and processing and storage of coal;
- Processing of solid fuels;
- Leakage of natural
gas and emissions of methane during coal mining;
- Flaring during
oil/gas extraction and refining;
- Mineral production
(cement, lime and glass); and
- Chemical production
(ammonia, Nitic acid, carbide and titanium dioxide).
The levying of the carbon tax will be linked to the
reporting obligations imposed in terms of the National Atmospheric Emissions
Inventory System (or NAEIS) in terms of the National Environment Management:
Air Quality Act.
The Draft Explanatory Memorandum to the Draft Bill explains that, "The
calculation of the tax base is closely linked to the DEA mandatory
reporting requirements of emissions for all economic sectors in South Africa
which is expected to become effective in the first half of 2016.”
The Explanatory Memorandum refers to a minimum (de minimis) threshold by stating that, "Only
entities with a thermal capacity of around 10MW will be subject to
the tax in the first phase. This threshold is in line with the
proposed DEA [Department of Environmental Affairs] GHG emissions reporting
regulation requirements and the Department of Energy (DoE) energy management
However, the proposed de minimis threshold does not
appear in the Draft Bill. As stated above, a person will be subject
to carbon tax in terms of the Draft Bill if that person carries
on an activity listed in Annexure 1, and there is currently no provision in the act that excludes entities with a
thermal capacity of less than 10MW from the tax. This appears to have been an
oversight that will need to be corrected.
of carbon tax
The Draft Bill is riddled with formulae. It looks as if the
formulae are aimed at establishing the tax base with reference to the
reporting obligations imposed by NAEIS.
The rate of tax is, "R120 per tonne carbon dioxide
equivalent of the greenhouse gas emissions” of a taxpayer. The liability
for carbon tax is determined by adjusting the tax base
with certain allowable tax-free allowances, and then multiplying it with
by the carbon tax rate. While the Draft Bill does not currently
propose an express de minimis threshold, it grants various allowances and then limits the maximum tax-free
allowance to 95 per cent.
The Draft Bill provides for a number of transitional tax-free
allowances which will reduce
a tax payer’s carbon tax liability. These include:
- A basic tax-free
allowance of 60 per cent for fossil fuel combustion;
- an additional tax-free
allowance of 10 per cent for process emissions;
variable tax-free allowance for trade-exposed sectors (maximum 10 per cent);
- a maximum tax-free
allowance of 5 per cent for above average performance (i.e. early actions and
/or efforts to reduce emissions that beat the industry average);
- a 5 per cent tax-free
allowance for companies with a Carbon Budget; and
- a carbon offsetting allowance of either
5 per cent or 10 per cent.
These tax-free allowances will range from between 60 and 95 per
cent of total emissions. In other words, the carbon tax that
will be imposed will equate to between 5 to 40 per cent of the actual emissions
during the tax period. Taking into account all of the
above tax-free thresholds, the effective carbon tax rate
will vary from between R6 and R48 per ton CO2-e.
The National Treasury will issue Regulations to give effect to the carbon offset
scheme and is engaging the DOE and the DEA on the administration of the offset
scheme. These draft regulations will be published for public comment in early
The revenue received from carbon tax will not be ring-fenced,
but will nonetheless be "recycled”. These revenue recycling measures will
- funding for the
energy efficiency tax incentive already being implemented;
- a reduction in the
electricity levy, additional tax relief for roof top (embedded) solar
photovoltaic (PV) energy as already provided for the in
- a credit for the
premium charged for renewable energy (wind, hydro and solar, as per the
Integrated Resource Plan);
- additional support
for free basic electricity to low income households; and
allocations for public transport.
The carbon tax will be administered by the Commissioner
for the South African Revenue Service as if it were an environmental levy
contemplated in the Customs and Excise Act, 1964. The DEA will assist SARS in
auditing an entity’s self-reported tax liability by collecting
greenhouse gas emissions data.
Taxpayers who are subject to the carbon tax will have to
submit six monthly environmental levy accounts for tax periods
commencing on 1 January and 1 July of every year.
Anti-avoidance provisions are included in the Draft Bill and if SARS is
satisfied that an arrangement is an impermissible tax avoidance
arrangement, it may determine the liability for the carbon tax and
the amount thereof as if the arrangement had not been entered into or carried
out, or in such manner that SARS deems appropriate for the prevention or
diminution of that tax benefit.
The Draft Bill is set to come into operation on 1 January
2017 despite recommendations from the Davis Committee that it should only
be implemented at a later date. This means that the parliamentary process must
be concluded and assent to the Bill given within one year.
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This article first appeared on the January/February 2016 edition on Tax Talk.