South Africa Announces Timelines For The Introduction Of The Carbon Tax

Introduction

The South African government announced that it will publish draft carbon tax legislation in 2015 for public consultation with a view to it becoming law in 2016. The Minister of Finance made the announcement during his annual budget speech on 25 February 2015.

The time from now until 2016 is a very important period within which businesses have the opportunity to come to terms with, and devise a strategy for, the impact that a carbon tax may have on their operations. South African companies of all types and sizes and across all industry sectors will need to act decisively to manage the broad commercial implications of the carbon tax. Direct application of the tax will be on a defined set of industry sectors (see discussion below). However, while many businesses will not face direct carbon tax liabilities, they will need to factor in the effect of the carbon tax that will be embedded in their supply chain - including the extent of their consumption of Eskom-generated electricity which will be subject to the carbon tax but subject to a cost pass-through to the consumer by Eskom - in order to manage changes to their cost base.

Preliminary comments

Basic facts: the carbon tax's key design features

The carbon tax will be imposed at a statutory rate of R120 per tonne of CO2e (carbon dioxide equivalent), rising 10% a year (R132 in year two; R145.20 in year three; etc). The tax relief measures (discussed further below) means that the effective carbon tax rate will range from R12 to R48 per tonne of CO2e; significantly lower than the statutory carbon tax rate.

The carbon tax will cover all direct greenhouse gas emissions from sources that are owned or controlled by the relevant entity. These emissions relate to energy use (fuel combustion and gasification) and non-energy industrial processes. For all stationary sources of emissions the carbon tax will be calculated on the fossil fuel inputs using approved emissions factors or an approved transparent and verified monitoring procedure. For all non-stationary greenhouse emissions (for example, liquid / transport fuels), the carbon tax will be incorporated into the current fuel tax regime.

Administration of the carbon tax

The carbon tax will be included in the Customs and Excise Act. Entities that engage in activities that emit greenhouse gases will be liable for the carbon tax and will need to submit their tax returns based on their own assessment of their emissions.

On 2 April 2015 the...