South Africa: Carbon tax measures included in budget 2021

South Africa: Carbon tax measures included in budget

The announcement in the budget speech for 2021 that the corporate income tax rate would be reduced from 28% to 27% attracted attention. Although there was no mention of anything related to carbon tax in the 2021 budget speech, there was a surprising amount of detail on proposed amendments to the carbon tax legislation, as contained in Annexure C to the 2021/22 Budget, which would require corporate taxpayers to pay more attention to their greenhouse gas (GHG) emissions.


The carbon tax was enacted and effective in 2019—making South Africa the first African nation to launch a carbon tax. While the legislation sets out how the tax will be managed for Phase 1 (ending 31 December 2022), many companies have unanswered questions regarding the financial impact of the tax for Phase 2, which will run from 2023 to 31 December 2030.

For the 2021 calendar year, the carbon tax rate would increase from R127 per ton of carbon dioxide equivalent (CO2e) to R134 per ton of CO2e.

Amendments to reporting requirements

The following changes are proposed, effective from 1 January 2021:

  • Threshold change for activity 1A2m brick manufacturing
  • Emissions from the following activities would be reportable for:
    • 1A2n manufacture of ceramic products by firing, in particular roofing tiles, tiles, stoneware or porcelain
    • 2A4a ceramics, 2A4b soda ash, and 2A4d - other
    • 2B10 chemicals industry - other
    • 2C7 metal industry - other
    • 2G1B electrical equipment
  • Previously exempt activities would be reportable for:
    • 3A2 manure management
    • 3C1a biomass burning in forest lands, 3C4 direct nitrous oxide emissions from managed soils, and 3C5 indirect nitrous oxide emissions from managed soils
    • 3D1 harvest wood products.

Offset of renewable energy premiums

In Phase 1 of the carbon tax, renewable electricity purchases can be offset against the carbon tax liability of electricity generators. An amendment is proposed to clarify that only entities that conduct electricity generation activities and purchase additional primary renewable energy, either directly under the Renewable Energy Independent Power Procurement Programme or from private independent power producers with a power purchase agreement, would be eligible to claim the tax deduction for their renewable energy purchases, effective from 1 January 2021.

Fugitive emissions activities

It is proposed that an additional category be included to cover activities relating to “other emissions from energy production.

Carbon capture and sequestration

For fuel combustion activities when carbon capture and storage technologies are used, the GHG emissions (net of sequestered emissions) are to be reported. To address possible double benefits for the same sequestered emissions, it is proposed that the definition of greenhouse gas emissions sequestration be amended to remove carbon capture and storage in geological reservoirs from the scope of the deduction.

In addition, to address concerns regarding the permanence of sequestered emissions in harvested wood products, it is also proposed that only actual forestry plantation sequestered emissions would be eligible for the deduction under the Carbon Tax Act.

Waste tyre (tire) greenhouse gas emissions

Although the Carbon Tax Act covers GHG emissions from waste incineration emissions, Schedule 1 of the Carbon Tax Act does not include a waste tyre fuel type and relevant emission factor. As such, there has been uncertainty over whether emissions due to the use of waste tyres are subject to the carbon tax, and  appropriate emission factors for waste tyres are to be developed for possible inclusion in the 2022 budget review.

Read a February 2021 report [PDF 155 KB] prepared by the KPMG member firm in South Africa 

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