The final “carbon tax” regulations—Trade Exposure and Greenhouse Gas (“GHG”) Intensity Benchmark Regulations—have been published.
The cost of the carbon tax can be reduced by the various allowances set out in the Carbon Tax Act No. 15 of 2019. The release of the regulations completes missing pieces of the carbon tax puzzle and provides taxpayers with much needed clarity on their carbon tax exposure.
Section 10 of the Carbon Tax Act caters for entities that are trade-exposed and sensitive to international competitiveness. Essentially, the trade exposure allowance has been included to provide that South African industries remain competitive. A taxpayer may qualify for a trade exposure allowance of up to 10%, depending on the sector(s) and subsector(s) in which it operates. The level of allowances for different sectors remains largely unchanged between the draft and the final trade exposure allowance regulations, except for the manufacture of tobacco products and man-made fibres sector—for which the allowances are reduced to 7.06% and 4.45%, respectively (from 10%).
Other changes include the addition of a trade exposure allowance for the sugar industry, and a clarification that, for purposes of calculating the company-specific trade intensity, the monetary value of imported products relates only to the final product relevant to that company (and does not include imported values of raw materials).
Section 11 of the Carbon Tax Act provides for an additional 5% “performance allowance” for qualifying taxpayers. A taxpayer is required to compare its own emissions generated as a percentage of the emissions generated by the industry in which it operates. The formula takes into account the actual emission intensity of the taxpayer for a certain tax period relative to an approved emission intensity benchmark factor. In essence, taxpayers that perform better than an approved sector’s or subsector’s GHG emissions intensity benchmarks will qualify for a performance allowance.
Under the draft GHG intensity benchmark regulations, there was no methodology for determining the applicable benchmark when multiple benchmarks or a range applied to a single activity. The final regulations now include a formula for such instances, in order to determine the applicable benchmark.
Additionally, following clarification on the “grid emission factor” (i.e., the emissions intensity of electricity generation in the grid) to be used when determining the relevant industry benchmark values, most sectors submitted revised, lower benchmark values. These submissions were accepted by National Treasury, and the regulations have been amended accordingly to reflect the lower benchmark values.
Read a June 2020 report [PDF 116 KB] prepared by the KPMG member firm in South Africa
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.