South Africa: Carbon Tax Act

Last Updated: 25 June 2019
Article by Conor McFadden, Margo-Ann Werner and Francois Joubert

Overview

This bulletin was prepared by Conor McFadden, Francois Joubert, Margo-Ann Werner, and candidate attorneys Johan Coertze and Khazi Mashamaite.

In light of the global effort to reduce the emission of greenhouse gases ("GHG"), the South African government has taken an active step in mitigating the high levels of GHG concentration in the atmosphere.  The newly elected president, Cyril Ramaphosa, has signed into law the Carbon Tax Act 15 of 2019 ("the Act"), effective from 1 June 2019. The Act takes a pro-environmental protection approach through the integration of the National Environmental Management Act 107 of 1998 ("NEMA") polluter pays principle read with tax law. 

The enactment of the Act is the culmination of a consultation process initiated by the 2011 Carbon Tax Discussion Paper. The Discussion paper was followed by the 2013 Carbon Tax Policy, 2014 Carbon offsets Paper and then the 2015 Draft Carbon Tax Bill.

Alignment of the Act with the mandatory GHG mandatory reporting

The basis of the Act is set on the National Greenhouse Emission Reporting Regulations, 2017 ("the Regulations").  The Regulations aim to provide a single national reporting system for reporting GHG emissions. The Regulations lists activities for which GHG emissions must be reported as defined in the Intergovernmental Panel on Climate Change ("IPCC") 2006 Guidelines' source categories. The Regulations have provided a substantial insight of GHG emission sources nationally and the positioning of tax-payers in the South African economy.

Taxable emission sources

The taxpayers will be taxed on the emission of the following GHG: CH4, CO2, N2O, HFC, PFC and SF6. The Act applies to four types of emission sources of the GHG:

  • Stationary source;
  • Mobile source;
  • Fugitive emissions; and
  • Industrial process and Product use emissions.

The Act provides average emission rates (emission factors) for different listed activities in the Act.  The emission factors, determined by means of reporting methodologies approved by the Department of Environmental Affairs, form the basis for calculation of a taxpayer's Carbon Tax liability (computed in terms of a formulae prescribed in the Act).

Carbon tax and administration of the Act

The Act levies a tax which is payable to the National Revenue Fund by a person who conducts an activity in South Africa resulting in GHG emissions above the threshold for the specified activity determined in accordance with Schedule 2 to the Act. The activities listed in Schedule 2 include fuel combustion activities, transport, refineries; surface and underground coal mining (in respect of fugitive emissions); industrial processes and product use emissions such as coal gasification; and the production of cement, iron, steel and glass.

Carbon Tax will be levied at a rate of R120 per ton of carbon dioxide equivalent of the GHG emissions of the taxpayer. The tax rate will be increased by a percentage equal to the CPI plus two percent per year until 31 December 2022 and by a percentage equal to CPI thereafter. The Act makes provision for various allowances which offset the amount of Carbon Tax payable, including the carbon offset allowance, the allowance for fossil fuel combustion, an allowance for industrial process emissions, an allowance in respect fugitive emissions, a trade exposure allowance, performance allowance and a carbon budget allowance.

The Commissioner of the South African Revenue Service ("SARS") is responsible for the administration of the Act as Carbon Tax is an environmental levy contemplated in section 54A of the Customs and Excise Act 91 of 1964 ("Customs and Excise Act"). Carbon tax must be administered, collected and paid in accordance with the provisions of the Customs and Excise Act. SARS has published draft documents relating to the registration as a customs and excise client, for the payments of Carbon Tax and the submission of the Environmental Levy Return for Carbon Tax ("Carbon tax return").  Public comment on these documents is allowed until 14 June 2019.

The tax period for the payment of Carbon Tax and the submission of Carbon Tax returns will be from 1 January to 31 December each year, except for the first tax period which will be from 1 June 2019 to 31 December 2019. The Submission of Carbon Tax returns and payment of Carbon Tax is due in July of the year following the end of the tax period.

Conclusion

The introduction of Carbon tax is a positive step by government in addressing GHG emissions, addressing climate change issues, and realizing the NEMA principles by holding polluters accountable. The Carbon tax also contributes towards South Africa meeting its climate change commitments under the Paris Agreement.

It does however remain to be seen what the effect the additional tax burden will have on businesses and individuals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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