Carbon Tax and Energy
As mentioned elsewhere, the announcement of a Carbon Tax in this year’s budget speech makes it less clear on how government aims to promote industrial development and the overall competitiveness of the South African economy. The effect of the introduction of Carbon Tax will, in our opinion, be severe and, although only to be introduced from 2015, companies will have to start considering Carbon Tax seriously in their budgeting processes.
- Carbon Tax
The Minister of Finance has announced the introduction of a Carbon Tax, effective from 1 January 2015. It was expected that the introduction of this tax would be delayed significantly given the proposed Eskom price increases and the current economic climate.
The design of the Carbon Tax has not changed from what was announced in the 2012 Budget. A Carbon Tax of R120 per ton of carbon dioxide equivalent (CO2e) is proposed with an initial tax-free threshold of 60%. This means that companies will only pay for 40% of their emissions initially. The relief is expected to reduce over time. Some trade-exposed and energy-intensive sectors may receive a higher tax-free threshold.
What does a Carbon Tax mean for the economy? We expect that National Treasury will be able to collect between R16 billion and R20 billion, depending on how the tax-free thresholds are applied to different industry sectors and how the Carbon Tax is levied.
A policy paper on Carbon Tax will be released in March 2013 which will provide greater clarity on how a Carbon Tax will be levied.
Companies will have to determine their carbon liability. This means that all companies will need to calculate their carbon footprint and understand the impact of a Carbon Tax on their bottom line.
National Treasury is also considering phasing out the electricity levy that forms part of the electricity price whilst phasing in the Carbon Tax. Some of the revenue collected from the Carbon Tax will be used to fund an energy efficiency savings tax incentive. We expect that this energy efficiency incentive is section 12L of the Income Tax Act, which has been in the Income Tax Act for over three years and is not yet operational.
- Certified emissions reductions tax incentive
Due to the adoption of the second commitment period of the Kyoto Protocol, government has proposed to extend the incentive for income generated from primary certified emissions to 31 December 2020.