Executive summary

On 20 November 2018, South Africa’s Minister of Finance tabled the much anticipated Carbon Tax Bill (the Bill) in Parliament. The Bill intends to ultimately lead South Africa to reducing greenhouse gas emissions based on the “polluter pays” principle. A phased approach to implementation will be employed, accompanied by generous tax incentives. The Carbon Tax will become effective from 1 June 2019 and it will be administered by the South African Revenue Service (SARS) through the Customs & Excise Act.

Detailed discussion

Phased Approach

The implementation of the Carbon Tax will be in a phased approach, starting with a modest initial effective tax rate that will be revised and increased over time. The first phase will run from 1 June 2019 to 31 December 2022 and the second phase from 2023 to 2030.

Tax Incentives

The first phase of the Carbon Tax implementation will be accompanied by tax incentives to lessen the impact on energy intensive sectors. For example, for the mining, iron and steel industries, the Carbon Tax will have an impact on the price of electricity for the first phase. This will be achieved through tax credits for the renewable energy premium (which is already built into the price of electricity) and the existing electricity generation levy.

A 60% tax-free emissions allowance is set for Energy activities and an allowance of up to 70% is set for Industrial Processes and Product Use (IPPU). In addition, other tax free emissions allowances include:

• 10% for process and fugitive emissions
• 5 to 10% for companies that use carbon offsets to reduce their tax, depending on the activity/sector
• 5% for companies with an approved carbon budget
• 10% for companies that are trade exposed
• 5% for above-average performance

The maximum total tax free emissions allowances are capped at 95%.

Administration: Customs & Excise Act

The Carbon Tax will be administered as if it is an environmental levy as contemplated under the Customs & Excise Act (the CEA). This means that the tax will be collected and paid in terms of the provisions of the CEA.

Administrative actions, requirements and procedures for purposes of submission and verification of account, collection and payment of Carbon Tax and the exercise of any right in relation to Carbon Tax, will be covered under the provisions of the CEA.

In essence, the entire administration and enforcement of the Carbon Tax will be done through CEA provisions.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services (Pty) Ltd., Johannesburg

• Leon Oosthuizen | leon.oosthuizen@za.ey.com
• Johnathan Fillis | johnathan.b.fillis@za.ey.com
• Alain Mahieu | alain.mahieu@za.ey.com

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