Last week, saw the publishing of the first ever Draft Carbon Tax Bill (the Draft Bill) by National Treasury for public comment, after much industry resistance.
“The introduction of a carbon tax has been resisted by many sections of industry, so this Draft Bill will be carefully scrutinised. National Treasury and the Department of Environment Affairs (DEA) hope that the carbon tax regime will create an incentive to use more environmentally friendly methods and technologies to reduce or eliminate the source of the pollution.
"The Draft Bill builds on the extensive stakeholder consultation conducted over the past five years, which includes the Carbon Tax Policy Paper and the Carbon Tax Discussion Paper,” said Claire Tucker, Bowman Gilfillan Africa Group's head of public law and regulatory.
She went further to explain that the bill comes as a result of government’s drive for ‘their desired emissions reduction outcomes.’
The Bill makes provision for the introduction of the carbon tax to be a gradual phase in, with the initial phase commencing on 1 January 2017 and due to run until 1 January 2020.
Collecting the tax
“It is proposed that the Commissioner for the South African Revenue Service (SARS) will administer the Act as if the carbon tax were an environmental levy as contemplated by the Customs and Excise Act. The DEA will assist SARS in auditing an entity’s self-reported tax liability by collecting greenhouse gas emissions data," stated Tucker.
“Carbon tax is calculated at a rate of R120 per tonne carbon dioxide equivalent (CO2-e) of the greenhouse gas emissions of a taxpayer. The Draft Bill contains formulae for the calculation of the amount of carbon tax payable by a taxpayer,” explained Bowman Gilfillan Africa Group associate Gillian Niven.
According to Niven, the carbon tax will be “levied in respect of the sum of the greenhouse gas emissions of a taxpayer for a particular tax period.”
This is called the CO2-e of those greenhouse emissions, which are comprised of “fossil fuels combustion, fugitive emission in respect of commodity, fuel or technology; and industrial process and product use.”
The CO2-e of the above is calculated using different formulae outlined the Bill.
Tax-free allowances
The Draft Bill provides for a number of transitional tax-free allowances which will reduce a tax payer’s carbon tax liability.
"These tax-free allowances will range from between 60 and 95 percent of total emissions. In other words, the carbon tax that will be imposed will equate to between five to 40 % of the actual emissions during the tax period. Taking into account all of the above tax-free thresholds, the effective carbon tax rate will vary from between R6 and R48 per ton CO2,” said Niven.
The National Treasury is reportedly in deliberations with the Department of Energy and the DEA as they discuss the regulations and administration for the carbon offset scheme.
Niven noted: "The National Treasury is in the process of finalising regulations to give effect to the carbon offset scheme and is engaging the Department of the Energy and the DEA on the administration of the offset scheme. Draft regulations will be published for public comment in early 2016."
What will happen with the revenue?
The revenue from the carbon tax is planned to be recycled.
“These revenue recycling measures will include funding for the energy efficiency tax incentive already being implemented; a reduction in the electricity levy, additional tax relief for roof top (embedded) solar photovoltaic (PV) energy as already provided for the in 2015 tax legislation; a credit for the premium charged for renewable energy (wind, hydro and solar, as per the Integrated Resource Plan); additional support for free basic electricity to low income households; and additional allocations for public transport,” added Niven.
The Draft Bill also includes a number of ‘impermissible tax avoidance arrangements.’
"If SARS is satisfied that an arrangement is an impermissible tax avoidance arrangement, it may determine the liability for the carbon tax imposed and the amount thereof as if the arrangement had not been entered into or carried out, or in such manner that SARS deems appropriate for the prevention or diminution of that tax benefit," highlighted Niven.
The Draft Bill is set to come into operation on the 1 January 2017, this requires the conclusion of the parliamentary process and assent to the Bill within the space of a year.
"The publication of the Draft Bill provides a further opportunity for stakeholders to comment on National Treasury’s carbon tax policy and administration. The deadline for written comments to National Treasury is 15 December 2015, after which the comments will be considered and a revised draft of the Bill will be submitted to Cabinet for approval and tabling in Parliament," Tucker noted.
To read the draft bill, click here.
To submit comment on the draft bill - The Draft Tax Bill, is published for public comments and is available on the National Treasury websitehttp://www.treasury.gov.za
Written comments should be submitted to Dr. Memory Machingambi, email: Memory.Machingambi@treasury.gov.za by the close of business on 15 December 2015