The Finance Minister has confirmed that a carbon tax will be implemented 1 June 2019. Carbon tax legislation has been passed by the National Assembly and has been sent to the National Council of Provinces for concurrence.
The carbon tax would impose an initial levy of R120 per ton of carbon dioxide equivalent (CO2e) of greenhouse gas emissions above certain tax-free allowances (the allowances could reduce the initial carbon tax rate to as low as R6 - R48 per ton of CO2e). The government’s aim is for businesses and households to take into account the price of greenhouse gas emissions in their production, consumption, and investment decisions.
Although the carbon tax is relatively simple in structure, its implementation is likely to be challenging. The carbon tax would be based on fossil fuel consumption, industrial process emissions, as well as fugitive emissions—all of which are not regularly or consistently measured by many South African taxpayers. The legislation has been drafted so that a taxpayer would be required to account for its annual emissions and determine its carbon tax liability accordingly.
The implementation date of 1 June 2019 may cause concerns for companies as they try to apportion their emissions for the 2019 calendar year and apply the annual thresholds as provided by the legislation. The South African Revenue Service (SARS) is expected to publish draft rules for public consultation by March 2019, and tax professionals have expressed a hope that this guidance would include rules for taxpayers to determine how to account for the seven-month period in 2019.
SARS and the Department of Environmental Affairs (DEA) would jointly administer the tax, with the DEA to collect the emissions data that would form the carbon tax base and incorporate it into the South African National Atmospheric Emissions Inventory System (NAEIS). SARS would be responsible for tax collection and assessment and would be supported by the DEA to verify reported emissions.
Alignment between the DEA and SARS systems reportedly has already started so that taxpayers would be able to use their DEA details for the SARS carbon tax registrations. SARS’ access to the DEA’s emission databases is viewed as an incentive for taxpayer compliance with the applicable emission thresholds.
With the introduction of the carbon tax, emission reduction credits could be used to reduce a taxpayer’s carbon tax liabilities. Accordingly, the tax exemption for income generated from the sale of certified emission reduction credits (section 12K) would be repealed effective 1 June 2019. This would avoid a “double benefit” when the same emission reduction could result in both an income tax exemption and a reduced carbon tax liability for the same taxpayer.
Read a February 2019 report [PDF 127 KB] prepared by the KPMG member firm in South Africa
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