Author: Riëtte Engels-Van Zyl – Director
It is unlikely that further changes in the Carbon Tax rate will be announced, given its enactment in 2019 and the amount of revenue that it is set to contribute to tax revenues.
Other environmental taxes such as the plastic bag levy, the environmental levy, and the vehicle emissions tax are unlikely to be increased in the 2020 Budget in light of the Environmental Fiscal Reform Policy review of environmental taxes announced in the 2019 Budget which is yet to be completed. It is not unlikely that the Environmental Levy on Electricity may increase despite the introduction of the Carbon Tax.
Carbon tax in South Africa – first payment update:
First payment
Payment of Carbon Tax for the 2019 tax period will need to be submitted to the South African Revenue Service (SARS) no later than the penultimate working day of July 2020.
Basics
The implementation of the Carbon Tax Act (15 of 2019) on 1 June 2019 was recognised as a significant first step by the WWF in reducing carbon emissions which cause climate change.
Carbon Tax essentially ‘put a price’ on carbon emissions. Put differently carbon tax is a fee imposed on each tonne of carbon dioxide equivalent (tCO2e) emitted. It is globally recognised as a core carbon pricing policy-instrument for reducing greenhouse gas emissions which are causing climate change.
Six greenhouse gas emissions and their sources are covered under the Carbon Tax Act:
CO 2 - typically from fuel combustion activities;
CH 4 - typically from waste and mining activities;
N 2 O - predominantly from agricultural activities;
HFCs - hydrofluorocarbons used as refrigerants;
PFCs – perfluorocarbons;
SF 6 - sulphur hexa fluoride associated with the electronics industry.
Schedule 2 of the Carbon Tax Act specifies a threshold for each activity that releases greenhouse gases. If a company conducts an activity and exceeds the given threshold, the company will be liable to pay carbon tax.
The Carbon Tax Act will be phased in over several years:
Phase 1 - 1 June 2019 to the 31 December 2022;
Phase 2 - 2023 to 2030;
2019 is the first tax year and it runs from 1 June 2019 to 31 December 2019. Thereafter each tax year will run from 1January to 31December.
The first payment of Carbon Tax and submission of required documentation for the 2019 tax period will need to be submitted to SARS no later than the penultimate working day of July 2020.
How is carbon tax calculated?
The amount of Carbon Tax is calculated by multiplying the carbon dioxide equivalent by the current rate of tax which is R120 per tonne of CO2e.
Tax free allowances are available to reduce the Carbon Tax liability to a maximum of 95% of taxable emissions during Phase 1.
Tax-free allowances are included in the Carbon Tax Act to assist South Africa to smoothly transition into a low carbon economy.
Multiple allowances can be granted to a taxpayer. The total amount of tax-free allowances that are granted during Phase 1 (1June 2019 – 31December 2022) may not exceed 95% and in some cases 90%.
The tax rate is set to increase by the consumer price inflation (CPI) index plus 2 % each tax year until 31 December 2022. Thereafter, the tax rate is set to increase by CPI each tax year.
How can Lawton Africa’s tax practice assist?
We are specialists in South African legislation and its various industrial applications. Our team of legal experts can assist you with all the aspects of Carbon Tax compliance.
We can identify whether you are liable for Carbon Tax and reduce your Carbon Tax liability with the qualifying tax-free allowances. We are also able to evaluate the indirect impact of carbon tax on your business activities, advise on the implications for new projects and the value of existing assets, reputational impact and the impact on business strategy.
Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit www.lawtonsafrica.com