The tax will force consumers to reduce fuel consumption, use cleaner fuels and adopt new technologies and methodologies within their businesses. Economists believe that taxes on polluting emissions reduce environmental harm in the least costly manner, by encouraging changes in behaviour by those businesses that can reduce their pollution at the lowest cost.
The South African government has identified carbon tax as an important deterrent in the fight against climate change. In May 2013, the National Treasury published a white paper on the prospective implementation of a carbon tax. In the 2015 budget speech, Finance Minister Nhlanhla Nene confirmed that a draft carbon tax bill will be introduced in 2015, before legislation in terms of Section 12L of the Income Tax Act is passed to implement the green tax in 2016.
The tax will be divided into three sections or scopes:
Incentives for compliant consumers
In 2013, a regulation came into operation stipulating that there must be a tax deduction for those consumers who are energy efficient. The regulation sets out the process for determining the quantum of energy efficiency savings and the requirements for claiming a deduction. Affected taxpayers have to compile energy saving reports and have their savings certified by the South African National Energy Development Institute (SANEDI) through the issuing of a certificate.
Any taxpayer can claim this tax deduction for energy efficiency savings. This in effect means that the deduction is not restricted to any industry, sphere of business or any project or energy efficiency initiative. If you are paying carbon tax, you can claim the deduction.
This is an incentive being offered for a deduction for those taxpayers investing in renewable energy. This comes in the form of an accelerated depreciation deduction, which is subject to requirements, exceptions and limitations. Hydropower generation and solar photovoltaic renewable energy are two examples where accelerated depreciation deductions will be considered.
There will be an incentive for those taxpayers that carry out carbon-friendly projects. These activities are known as carbon offsets, an economic tool proposed in the White Paper two years ago. A carbon offset is an investment that presents a cheaper option than direct investment into its existing infrastructure.
Offsets are generally achieved by financially supporting projects or organisations that reduce the emission of greenhouse gases or lead to the prevention of future greenhouse gas emissions. Types of carbon offsetting projects range from carbon sequestration through reforestation, renewable energy, energy efficiency, methane recovery and fuel switch.
There has been a fair amount of concern from big business that the implementation of the carbon tax could have a very negative impact on the South African economy. Business Unity South Africa (BUSA) argues that although a green tax can play a role in achieving the transition to a low carbon economy, these commitments and aspirations should also take into account the possible negative economic and social impacts of the carbon tax over the short-term and hence the need for a more gradual transition toward a low carbon economy.
BUSA has questioned whether the tax is necessary at a time when South Africa is experiencing an electricity crisis and a poor economic outlook. It argues that in the short term, there will be no material increase in the GHG emissions, that is until Medupi and Kusile come online. Furthermore, the proposed increase in the electricity levy will increase the cost of electricity, which will further undermine the competiveness of the economy relative to other countries, particularly those that do not put a price on carbon emissions. The increased cost of electricity would have a severe impact on the competiveness of the mining and manufacturing industries.
Therefore, BUSA has welcomed the Davis Tax Committee's (DTC) decision to include a review of the scope and design of the proposed carbon tax. In this regard, BUSA has made submissions to the DTC laying out its concerns and reservations about the carbon tax, ensuring that legislation will not easily be passed without proper consideration by government and Treasury as to its pros and cons.
Whilst the introduction of a green tax is inevitable, there are still questions surrounding the proposed scope and effect of the tax. Many expect that it will have devastating effects in its current form. Although the concept is worthy, hopefully the DTC will recommend - and the legislature will consequently implement - a more 'economy friendly' version of the green tax that allows consumers to soften the blow that the introduction will ultimately cause.
