As a result of government’s undertaking to reduce greenhouse gas emissions and meet its international commitments, various specific environmental tax proposals have been announced including the announcement that carbon tax will be implemented on 1 June 2019, that the energy-efficiency savings initiative will be extended, and that the tax exemption for certified emissions reduction will be repealed. These welcome announcements should be seen within the broader review of environmental fiscal reform policy announced in the Budget. This article briefly examines some of the environmental tax proposals.
Carbon tax to be implemented on 1 June 2019
Given that it seems forever since carbon tax was first mooted in South Africa, one could be forgiven to think that it may never materialise. In particular, there have been extensive public consultations, workshops, seminars and reworkings of the proposed tax including various announcements pertaining to its proposed implementation date. However, the Minister has announced in the Budget that it will be implemented on 1 June 2019.
In short, the carbon tax will play a role in achieving the objectives set out in the National Climate Change Response Policy of 2011 (NCCRP) which focuses on the “polluter-pays principle” and aims to ensure that businesses and households take these costs into account in their production, consumption and investment decisions.
The proposed headline carbon tax is R120 per ton of CO2e for emissions above the tax-free thresholds. Given the above tax-free allowances this would imply an initial effective carbon tax rate range as low as R6 to R48 per ton of CO2e. The aim of the tax is thus to reduce emissions in the medium to long term thereby ensuring South Africa’s critical contribution to halting the effects of climate change.
Extension of energy-efficiency savings initiative
The energy-efficiency savings tax incentive as contemplated in s12L of the IT Act was introduced in November 2013 to offset the tax burden on industry from the introduction (or pending introduction rather) of carbon tax. In its simplest form, it provides companies with a tax deduction for energy-efficient investments, contributing to environmental goals while reducing energy costs. While the incentive was due to expire on 31 December 2019, to encourage additional investment in energy efficiency savings, government proposes to extend the incentive to 31 December 2022. During 2019, government will review the design and administration of the incentive to improve its ease of use, effectiveness and economic impact, which comes on the back of SARS issuing Interpretation Note No. 95 on 11 January 2019 pertaining to the technical application of s12L of the IT Act, read with the relevant regulations. Given the implementation of carbon tax on 1 June 2019, the energy-efficiency savings allowance will become increasingly important for carbon intensive taxpayers and the extension of the allowance should thus be welcomed.
Repeal of tax exemption for certified emissions reduction
In 2009, government introduced a tax exemption for income generated from the sale of certified emission-reduction credits. The intention was that after the introduction of carbon tax, emission-reduction credits could be used to reduce carbon tax liabilities. Given the now proposed implementation date of carbon tax on 1 June 2019, this tax exemption will be repealed from 1 June 2019 in order to avoid a double-benefit scenario, where the same emission reduction leads to both an income tax exemption and reduced carbon tax liabilities.
Holistic review of environmental fiscal reform policy
The aforementioned proposals and announcements should be seen within the context of the announcement that National Treasury will publish a draft Environmental Fiscal Reform Policy Paper in 2019, which will outline options to reform existing environmental taxes to broaden their coverage and strengthen price signals. It is understood that the paper will also consider the role new taxes can play in addressing air pollution and climate change, promoting efficient water use, reducing waste and encouraging improvements in waste management. Government will also investigate a tax on “single-use” plastics including straws, caps, beverage cups and lids, and containers to curb their use and encourage recycling. It will also review the biodiversity tax incentive.
The specific announcements and proposals in the Budget pertaining to environmental taxes, including the long-awaited implementation date of carbon tax is thus a clear sign of government’s steadfast commitment to the Paris Climate Agreement and environmental concerns in general.