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South Africa Consults On Carbon Tax Legislation

by Lorys Charalambous, Tax-News.com, Cyprus

05 November 2015


On November 2, as part of the Government's measures to address climate change and to reduce greenhouse gas emissions in South Africa, the National Treasury published draft carbon tax legislation for public comment.

South Africa has committed to reduce GHG emissions below their current levels by 34 percent by 2020 and by 42 percent by 2025. The Government decided last year that the carbon tax should be postponed by a year, into 2016, to allow for further consultation, which has been ongoing since 2010.

It is proposed that an initial carbon tax rate of ZAR120 (USD8.61) per ton of CO2 will be imposed. However, taking into account certain tax-free thresholds and allowances, the effective tax rate over the first phase of the carbon tax –  from the eventual implementation date up to 2020 – is expected to vary between ZAR6 and ZAR48 per ton of CO2.

For example, a basic 60 percent tax-free threshold will be available during the tax's first phase, together with additional tax-free allowances of up to 10 percent for process emissions and for trade exposed sectors. Recognition for early action and/or effort to reduce GHG emissions that beat the industry average will result in a tax-free allowance of up to five percent.

It is also intended that carbon offsets will enable firms to cost-effectively lower their carbon tax liability by between five and 10 percent of their actual emissions, and will incentivize investment in GHG emission-mitigation projects that deliver carbon emissions reduction at a cost lower than the carbon tax.

The combined effect of all of the tax-free thresholds will be capped at 95 percent. With the tax-free exemptions ranging between 60 and 95 percent of total GHG emissions, it is implied that the carbon tax will be imposed on only 5 to 40 percent of actual emissions during the tax's first phase.

Revenue recycling measures are also proposed. These will include funding for the energy efficiency tax incentive already being implemented; a reduction in the electricity levy; additional tax relief for solar energy as already provided for in the 2015 tax legislation; a credit for the premium for renewable energy; and additional support for free basic electricity to low income households.

The National Treasury noted that the tax has been designed to ensure that its overall impact (when taking into account the revenue-recycling measures) "will, in the initial phase, be revenue neutral, and also neutral on the price of electricity."

"Taking into account the current state of the mining and other distressed sectors," it added, "the combined effect of the rates/exemptions in the carbon tax and the reduction in electricity levy will be designed to ensure that such sectors are not adversely affected when the tax is implemented. The tax and revenue recycling measures are also designed to be revenue neutral from a macroeconomic perspective, but will not necessarily be neutral for companies with significant emissions."

"The publication of the Draft Carbon Tax Bill provides an opportunity for further comments on the design and technical details of the carbon tax policy and administration," the National Treasury concluded. "It should be noted that the final tax rate, exemptions, and the actual date of implementation will be determined by the Minister of Finance through the annual Budget process."

TAGS: South Africa | environment | tax | investment | business | mining | energy | law | tax thresholds | legislation | tax rates | carbon tax | tax breaks | business investment | Africa | Tax

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