South Africa: Extension of carbon tax in budget 2022

Measures for implementation of the carbon tax

Measures for implementation of the carbon tax

The 2022 budget includes measures for implementation of the carbon tax and specifically concerning the extension of the first phase of the carbon tax by three years through 31 December 2025.

Background

The Carbon Tax Act No. 15 of 2019 was signed by the president in May 2019 and effective from 1 June 2019.

The carbon tax law sets out how the tax will be managed for Phase 1 (initially due to end on 31 December 2022), but is silent on the specifics of Phase 2—intended to run from 1 January 2023 through 31 December 2030, leaving many companies with unanswered questions regarding the future financial impact of the tax. 

Carbon tax rate increase

The carbon tax legislation specifies that the initial rate of carbon tax of R120 per tonne will be increased by consumer price inflation (CPI) +2% per year until 31 December 2022, and thereafter the rate of tax will be increased only by CPI. Therefore, the carbon tax rate will increase from R134 per tonne of carbon dioxide equivalent (CO2e) to R144 per tonne of CO2e for the 2022 calendar year.

Impact of the first phase extension

While the current support measures, such as significant tax-free allowances and revenue‐recycling measures, will remain in place until December 2025, the following changes are proposed:

  • The section 12L energy efficiency savings tax incentive, encouraging businesses to contribute to South Africa’s environmental goals through reducing energy costs, would be extended from 1 January 2023 through 31 December 2025.
  • The electricity price neutrality commitment would remain in place until 31 December 2025 (the electricity‐related deduction would be limited to the carbon tax liability of fuel combustion emissions of electricity generators, and would not be offset against the total carbon tax liability).
  • The maximum trade exposure allowance available to entities that are trade exposed and sensitive to international competitiveness would be increased from 30% to 50% from 1 January 2023. (Updated sectors and allowances are to be published for public consultation.)

There are other carbon tax-related measures proposed in the budget 2022.

Read a February 2022 report [PDF 273 KB] prepared by the KPMG member firm in South Africa 

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained 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.