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South Africa: Carbon tax update; expected effective date June 2019

South Africa: Carbon tax update

A carbon tax bill was adopted last week by the Standing Committee on Finance, and is currently under consideration by the National Assembly. The Minister of Finance has indicated that a carbon tax would be effective beginning 1 June 2019. However, the first tax period for the carbon tax has yet to be determined, and only emissions from that date would be subject to the carbon tax. More clarity is expected in next week’s budget speech.

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The carbon tax has been designed with a phased-in approach and to allow many tax-free allowances. In addition, it is expected that there would be a range of tax incentives and revenue recycling measures to minimise the initial impact of the carbon tax such as possibly extending the period of the current energy efficiency savings tax incentive beyond 1 January 2020. The impact of the carbon tax would also be reviewed at least three years after implementation.

The initial carbon tax rate would be R120 per tonne of carbon dioxide equivalent (CO2e) of greenhouse gas emissions above the tax-free threshold of a taxpayer. Taking into account the various tax-free allowances, this could translate into an initial effective carbon tax rate range as low as R6 to R48 per tonne of CO2e. The bill also specifies that this rate would have to be increased by a consumer price inflation (CPI) percentage of +2% per year until 31 December 2022, after which the rate of tax would be increased only by CPI.

The carbon tax would be calculated based on industry sector activity classifications (contained in a schedule to the bill). An extensive listing of activities is covered—including waste, industrial processing, and agriculture. Taxpayers would need to determine whether their emissions (from fuel combustion, industrial processes, and fugitive emissions) fall below the prescribed thresholds, and whether or not they would be liable for carbon tax. Taxpayers subject to the carbon tax would be required to submit environmental levy accounts and payments as prescribed in terms of Customs and Excise Act No. 91 of 1964 on an annual basis for every tax period.
 

Read a February 2019 report [PDF 82 KB] prepared by the KPMG member firm in South Africa

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