Carbon tax full steam ahead

National Treasury says the next draft Carbon Tax Bill is expected by late August or September this year.

However, regulations and guidelines on the reporting and monitoring of greenhouse emission gases must first be finalised for the carbon tax to go ahead.

National Treasury says the draft carbon offset regulations should be ready for publication by the end of this month (June). The first provisional tax payment is scheduled for June next year.

Treasury held an open consultation session on the draft bill in April where issues regarding timelines, administration, and the impact on the electricity tariff and fuel prices were discussed.

The proposed tax is expected to be imposed at a rate of R120 per ton of carbon dioxide (CO2), rising by 10% every year. However, if the proposed revenue recycling allowances are taken into account the effective tax rate will range between R6 and R48 per ton of CO2.

Ernie Lai King, head of tax at law firm Hogan Lovells, earlier warned about the impact of the tax on the economy.

“The fear is that South African companies may be held back economically by carbon taxation, which could act as a barrier to industrial and commercial progress,” Lai King has warned.

National Treasury insists that the carbon tax will help to reduce greenhouse gas emissions in the medium and longer term.

“The economic impact will be minimal as the tax will be gradually phased in. There will be no impact on electricity prices until 2019.”

Cova Advisory director Duane Newman says measures will be put in place to reduce the electricity levy and to offer credits for renewable energy to ensure the net effect on the electricity price in the first phase will be negligible.

Modelling done by treasury indicate that the net effect on the fuel prices will be 11c/liter on petrol and 12.9c/liter on diesel.

“Treasury indicated that once we have a fully-fledged carbon tax in place it (Treasury) will do away with environmental levies on fuel. Treasury has indicated that for the first phase of the carbon tax, the impact on fuel prices is expected to be very low,” says Newman.

During the consultation session companies have asked for greater clarity on the revenue recycling measures to limit the impact of the tax.

Treasury has indicated it is investigating ways to improve incentive programs such as the energy efficiency incentive and the research and development incentive.

Newman, who is also chair of the South African Institute of Tax Professionals’s incentive committee says it seems there are efforts to review the Green Fund which have been plagued by “obstacles” in the past.

The Department of Environmental Affairs (DEA) has set up the fund to support the transition to a low carbon economy. The fund has been capitalized with R1.1 billion in 2012. The department acknowledged that it was not sufficient. Part of the institutional arrangements needs to be reformed and it needs to be changed to a larger fund.

The DEA is responsible for the greenhouse gas emission reporting, and the technical guidelines.

Zelda Burchell, carbon specialist at Cova Advisory says the current structure of the bill provides little certainty on the carbon tax price going forward, especially for the second phase of its implementation.

“Companies have to develop long-term business plans for the next five to ten years and need to include the impact of the carbon tax on their businesses.”

The reality is that companies do not know how to cost it, and therefore have no certainty over the longer term, she adds.

Treasury needs to provide more clarity on the carbon tax price. It remains to be seen if this will be addressed in the new revised version of the bill, Burchell says.

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