Pretoria - The first carbon tax payment will be due in early 2018, despite warnings that implementation of the tax will harm economic growth and strategic sectors such as mining and manufacturing in the short-term.
Judge Dennis Davis, chairman of the Davis Tax Committee, last week warned it was not a good time to implement a carbon tax.
He is quoted as saying companies will pass on the additional cost to consumers, especially poor consumers.
The committee's objective is to assess South Africa's tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability.
However, the National Treasury says the tax has been designed to ensure that its overall impact will be not adversely affect strategic sectors once it is implemented.
In addition, treasury says, it will only have a "marginal negative impact" on economic growth over the short term.
The latest figures from Stats SA indicated that economic growth decreased by 1.3 percent during the second quarter of this year.
Treasury says the combined effect of the rates and exemptions and a reduction in the electricity levy will ensure "revenue neutrality".
But, it also says that although the tax will be revenue neutral from a "macro-economic perspective", it will not necessarily be neutral for companies with "significant emissions".
Ernie Lai King, SA Institute of Tax Professionals' (SAIT) board member and head of tax at law firm Hogan Lovells, says there has been strong plea from business and labour to follow Australia's example to abandon carbon taxes.
The proposed tax is expected to be imposed at a rate of R120 per tonne of carbon dioxide (CO2), rising by 10 percent every year. However, if the proposed revenue recycling measures are taken into account the effective tax rate will range between R6 and R48 per tonne of CO2.
"The fear is that South African companies may be held back economically by carbon taxation, which could act as a barrier to industrial and commercial progress," says Lai King.
He adds companies will find it difficult to influence reductions in emissions, given the dependence on fossil fuels for the generation of energy.
Duane Newman, director of Cova Advisory and head of the SAIT tax incentive committee, says the basic design of the tax has not changed, but it is clear that treasury has taken some of the concerns raised into account.
Treasury said given the country's developmental challenges, the tax will be gradually phased in. One of the proposed measures is a reduction in the electricity levy. The levy has been increased to 3.5c/kWh.
The implementation date has been set at 1 January 2017, with the first full year being from then until December 2017.
"The challenge for many companies is that the reporting periods will be out of line with their financial year end," says Newman.
He says it is also clear that some of the carbon tax will be levied at company level on emissions at the factory, and emissions from burning petrol or diesel will be collected through the fuel levy system.
If carbon tax is collected on all fuel sold in South Africa, it could have an inflationary effect."
Bowman Gilfillan Africa Group associate Gillian Niven says that the revenue received from carbon tax will not be ring-fenced, but will nonetheless be "recycled".
One of the modelling exercises initiated by treasury shows that a carbon tax with broad sector coverage implemented gradually and supported by "effective and efficient revenue recycling measures will contribute to the reduction of greenhouse gas emission.
The tax design allows for certain tax-free thresholds, and the combined effect of all the thresholds will be capped at 95%.
Newman says this means a company will only pay R6 per tonne CO2 if all the thresholds were applicable, and a maximum of R48 per tonne CO2 if not.
Niven adds treasury is in the process of finalising regulations to give effect to the carbon offset scheme and is engaging the Department of the Energy and the Department of Environmental Affairs on the administration of the offset scheme. Draft regulations will be published for public comment in early 2016.
Comments on the draft bill have to be submitted by 15 December this year. A revised bill incorporating the comments will be submitted for approval by the Cabinet.
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