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SA Should Levy Zero Carbon Tax In First Year: Committee

by Lorys Charalambous, Tax-News.com, Cyprus

18 November 2015


The Davis Tax Committee (DTC) has recommended that, although South Africa's new carbon tax on greenhouse gas (GHG) emissions could be in operation from January 1, 2017, no tax liability should be imposed on carbon emissions until the following year.

The National Treasury has proposed that the initial carbon tax rate would be ZAR120 (USD8.40), but that its effective tax rate over a first phase (up to 2020) should be much reduced. In particular, there would be a basic 60 percent tax-free threshold, and tax-free allowances of up to 10 percent for process emissions and for trade exposed sectors.

However, in its recent interim report on the new tax, the DTC has suggested that the tax-free threshold should "be set to 100 percent for the first year, i.e. firms producing emissions should be required to comply and submit returns but should incur no tax liability in the first tax year after implementation."

The Committee noted that GHG emissions reporting regulations have been developed and will be implemented from next year, and that mandatory GHG reporting requirements become effective in January 2016. However, in its opinion, a tax-free year "would provide companies with the necessary data to plan more effectively, and allow [the South African Revenue Service] to fine-tune tax reporting systems."

In addition, the year would "provide the National Treasury with additional information to allow for more accurate modeling and revenue forecasting, … [and] would also assist the Government in developing and testing the necessary administrative systems."

Another reason given by the DTC for a tax liability delay is the immaturity of the South African carbon offsets market, "with a very low number of approved projects, all of small size, that meet the stringent criteria for use by firms."

Under the new tax, it is intended that carbon offset credits will enable firms to lower their carbon tax liability by between 5 and 10 percent of their actual emissions, and should incentivize investment in GHG emission-mitigation projects that deliver lower-cost carbon emissions reductions. The Committee would allow the banking of credits for the first year, "so that the immaturity in the market is addressed and investment may begin prior to the use of these offsets."

Furthermore, the DTC added that "a more detailed analysis of revenue recycling is needed in order to fully understand the distributional effects of the carbon tax."

Comments from interested parties on the DTC's report should be forwarded by January 31, 2016.

TAGS: South Africa | environment | tax | investment | business | law | tax thresholds | tax rates | carbon tax | regulation | business investment | Africa | Tax

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