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Carbon Tax – Liable Entities

Tuesday, 24 November 2015   (0 Comments)
Posted by: Authors: Mansoor Parker and Andrew Gilder
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Authors: Mansoor Parker and Andrew Gilder (ENSafrica)

On Monday 2 November 2015, the South African National Treasury published a Draft Carbon Tax Bill (the "Bill”) for public comment, with the comment period commencing immediately and continuing until 15 December 2015.

Among the themes that we will be exploring in this series of articles on the Bill are the aspects of the carbon tax regime that will feel out-of-the-ordinary for professional tax practitioners. Like the phenomenon to which it is intended to respond, namely climate change (as much an economic challenge as an environmental one), a comprehensive response to the carbon tax will require tax professionals to look beyond their usual sphere of operations and to cooperate with professionals from a range of other disciplines. This is also a function of the tax design which encompasses elements of tax law, carbon markets law, environmental law and financial and operational strategy. While this theme will be explored more fully in later articles in this series, this article sets the scene by considering a fundamental connection established by the Bill between tax law and environmental law.

Our point of departure is to consider the simple question of which entities will be carbon tax liable and to provide a high level/first response to the question. Making this determination is slightly more complex than one would imagine. Section 2 of the Bill provides that there "…must be levied and collected for the benefit of the National Revenue Fund, a tax to be known as the carbon tax”. Section 3 of the Bill is the charging provision and it provides that:

"A person is—

(a)  a taxpayer for the purposes of this Act; and

(b)  liable to pay an amount of carbon tax…,

if that person conducts an activity as set out in Annexure 1 to the Notice issued by the Minister responsible for environmental affairs in respect of the declaration of greenhouse gases as priority air pollutants under section 29(1) read with section 57(1) of the National Environmental Management: Air Quality Act, 2004 (Act No. 39 of 2004)” (our emphasis).

The following elements of the emphasised portion of section 3 warrant some consideration:

  • "conducts an activity”;
  • "Annexure 1 to the Notice... in respect of the declaration of greenhouse gases as priority air pollutants” and;
  • "issued by the Minister responsible for environmental affairs.”

Conducts an activity 

The suite of discussion documents that has, hitherto, explained Treasury’s intentions in relation to the design and application of the carbon tax, provides only an indication of the sectors that will be susceptible to carbon taxation. This permitted educated guesses to be made in relation to whether particular entities would be tax liable, especially for major sectoral players, e.g., in the energy generation sector. The Bill is more specific on who will be tax liable and relies upon a legal construction that is fairly typical in South African environmental law, namely the idea of a person who "conducts an activity”.

The "conducting of activities” that may have detrimental impact on the environment, e.g., infrastructure development activities, emitting activities which have implications for air quality or waste management activities, triggers the obligation for the person conducting the activity to make application for and to obtain a permit or license that authorises the conduct of that activity prior to its commencement. Given that carbon tax is aimed at pricing greenhouse gas emissions in the South African economy and that such emissions have an air quality/environmental impact, the carbon tax design looks to air quality/environmental legislation to determine liability for carbon tax. In short, in order to ascertain carbon tax liability, one must consider Annexure 1 to the Notice mentioned in section 3 of the Bill.

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