PRESIDENT Cyril Ramaphosa has signed the Carbon Tax Act into law. Pixabay
JOHANNESBURG – South Africa has experienced environmental challenges, with the recent floods in KwaZulu-Natal and drought in Cape Town in 2018. 

Studies have shown that Cape Town, Paarl, Durban, Port Elizabeth and East London are at risk to join the lost city of Atlantis by 2050 when flooding occurs. 

This methodology is based at a 1-degree grid scale where cities will be experiencing at least 0.5 metres of sea level rise by the 2050. President Cyril Ramaphosa has signed the Carbon Tax Act into law and it will come into effect on 1 June 2019 in order to reduce the impact of climate change following the polluter-must-pay-principle, taxing greenhouse gas (GHG) emissions. 

The policy behind the introduction of carbon taxes is to ensure an environmentally sustainable economic growth path for South Africa and adherence to the Paris Agreement to reduce GHG emissions. The initial carbon tax rate is set at R120 per ton of CO2e, discounted to R48 per ton of CO2e given various taxfree allowances. 

“Businesses and consumers will feel the impact in their pocket, having to account for R1.8 billion in carbon tax as estimated by National Treasury in the 2019 Budget Review. But how?” writes Madelein Grobler, SAICA Project Director: Tax. 

Big Corporates 

“Eskom comes first to mind being impacted by Carbon Tax, having the largest carbon dioxide footprint of 205.5 million tonnes per its 2018 Integrated Report. National Treasury, however, has rolled out substantial relief in Phase 1 (until December 2022) for the electricity giant, due to the tax credit for the renewable energy premium built into the electricity tariffs and a credit for the existing electricity generation levy. 

Currently Eskom is paying 3.5 cents per kilowatt-hour, as an environmental levy on electricity generated from coal, nuclear and petroleum sources (i.e. nonrenewable energy) that would serve as a “carbon tax credit”. 

South Africans can therefore breathe a sigh of relief for now in that the electricity price will probably not increase. However, the inevitable is only postponed, as consumers will fit the carbon tax bill in future, similar to the current environmental levy being recovered through sales. Other energy intensive sectors such as mining, iron and steel will also benefit initially from Phase 1 as no additional production costs will arise with the electricity price staying the same. 

The other industry coming to mind is the petroleum and fossil industry. In this regard, Sasol’s preliminary estimates show that the impact of the tax can range between about R7 million and R2 billion pre-tax from the 2019 financial year. How and if these additional taxes will filter through towards consumers remains to be seen. 

However, it is certain that South Africans will feel it in their monthly budgets with immediate effect on 5 June 2019, when the petrol price increase with 9c/litre and diesel with 10c/litre as noted in the 2019 Budget Review, at the fuel stations nationwide. 

The carbon tax will be included in the fuel tax regime given the mobile emissions that results from the use of liquid fuels (i.e. petrol and diesel)

The additional carbon tax will also trickle down into cost of living everyday (i.e. food prices, cost of goods, online deliveries, etc.) considering the most things in South Africa is transported by road.

Small to Medium Enterprises Small to Medium Enterprises (SMEs) will have an administrative task at hand in determining whether they would fall within the ambit of mandatory reporting to the Department of Environmental Affairs (DEA) as they may conduct activities emitting GHG and furthermore have a carbon tax liability. SMEs likely to be influenced by the above would be the industrial and manufacturing facilities who have process emissions due to chemically or physically transforming material, for example steel and cement. 

These SMEs will be impacted by carbon tax, as there is no threshold. Furthermore, those SMEs that have extremely high energy-intense businesses may also be impacted if their stationary combustion equipment (like diesel generators) generate heat or electricity. Important to note is that the threshold for combustion emissions is the totalled installed capacity of the equipment rather than actual emissions. SMEs may be set back by between R5 000 to R50 000 (complex matters) in consulting fees2 where they utilise advisory consultants to determine their installed capacity and thresholds. 

This fee would however include the mandatory report preparation and submission, where SMEs are required to submit to the DEA. In addition to the mandatory reporting, SMEs may be set back a further consulting fee5 of R20 000 to R50 000 where such SMEs are liable to pay carbon tax (including the tax fee allowances) and submit a return. 

Remember, the SMEs still need to pay their carbon tax liability. The above consulting fees do, however, not take into account the practical and administrative burden in registering for Customs and Excise through which the carbon tax will be administered by SARS. Consumers will feel the brunt again when SMEs filter through the possible additional consultancy fees and carbon tax through their pricing.

Micro Businesses 

Micro businesses would most likely fall under the carbon tax capacity threshold and not be liable for carbon tax. Hence only indirect costs will filter through due to the introduction of carbon tax at fuel stations and big corporates and SMEs’ carbon tax liabilities. 

Big corporates and SMEs with GHG emissions will have a positive impact in sustainability development in South Africa, as such companies may be able to elect to reduce their carbon tax liability (between 5% and 10% of their GHG emissions) by purchasing carbon credits. Companies may therefore select which approved carbon credit projects to invest in, rather than just paying the carbon tax that will fall within the general Government fund pool. 

South Africa’s GHG emissions are expected to peak between 2020 and 2025, level for a decade and only after that decline. Therefore, South Africans are in carbon taxes for the long run to ensure a better future for those still to come,” concludes Grobler.

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