Refunds in respect of meeting carbon budgets

The Climate Change Act, which partially commenced in 2025, creates a framework for South Africa’s commitment to transitioning to a low-carbon economy, and was bound to impact the Carbon Tax Act, in terms of which the carbon tax is levied. Among other things, the Climate Change Act provides for the Department of Forestry, Fisheries and the Environment to set carbon budgets for sectors and relevant participants. The Carbon Tax Act was duly amended to accommodate this. Previous carbon budget allowances would fall away.

Essentially, carbon tax has annual carbon tax periods, but carbon budgets run over multi-year cycles. From a policy perspective, if a company exceeds its annual carbon budget and pays carbon tax on the excess emissions, but ultimately complies with its five-year carbon budget, it should be entitled to a refund. The insertion of section 17A into the Carbon Tax Act was to provide for this, as proposed in the 2025 Taxation Laws Amendment Bill.

However, the proposed wording appears to have been unclear, as reference was only made to “the immediately preceding tax period”, leaving taxpayers uncertain as to which periods a refund could be claimed for in any given year in relation to a budget cycle. It is now proposed that it will be made clear that a refund may be claimed in the third year for the first two tax periods. From years three to five, and over the five-year budget period, a refund may be claimed in the sixth year. Effectively, there will be a mid-cycle correction point, and then a final reconciliation in year six.

Adjusted carbon tax thresholds for certain commercial and institutional combustion

Many commercial and institutional entities (e.g. office parks, shopping centres, hospitals, etc.) have installed back-up diesel generators to buffer against electricity supply issues, including load-shedding. While they might have significant installed capacity, actual use may be very little. However, simply having the installed capacity can trigger carbon tax compliance, such as registration and submission of returns, irrespective of actual use and actual carbon tax liability. To narrow the scope and reduce superfluous compliance, it is now proposed that the capacity-based threshold for activities under Intergovernmental Panel on Climate Change Code 1A4a, be replaced with an emissions threshold of 25,000 tonnes of carbon dioxide equivalent, with effect from 1 January 2026.