Carbon tax applies to a person (including a partnership or trust) who conducts an activity in the Republic which results in GHG emissions above the allowed threshold.
Carbon tax will be jointly administrated by SARS and the Department of Environmental Affairs (DEA).
An accurate system for monitoring, reporting and verification of emissions is crucial to the implementation of the carbon tax. SARS will be the main implementing administrative authority on tax liability assessment. The DEA will assist SARS to verify the reported emissions and be responsible for the collection of emissions data. Access to the DEA’s databases by SARS will increase compliance with the legislation and the applicable thresholds by taxpayers.
Taxpayers will be required to register with SARS and the DEA, report their annual emissions to DEA, submit environmental levy accounts and make payments to SARS on an annual basis for every tax period.
The tax is calculated in terms of a three-component formula which takes into account triggering activities being fuel combustion emissions, fugitive emissions from fuel and industrial processes and product use emissions. Many corporates do not currently measure their emissions and would need to implement measuring and verification procedures to comply with the legislation.
The proposed carbon tax is R120 per tonne of carbon dioxide equivalent (CO2e) of GHG emissions above stipulated tax-free allowances. The carbon tax formula also takes into account a basic allowance of 60% and additional allowance mechanisms varying between 5 - 10% for trade exposure, performance, companies participating in the DEA’s carbon budget system and carbon offsets purchased. These tax-free allowances could result in the effective carbon tax rate range being as low as R6 -R48 per tonne of CO2e during the first phase (up to 2022). This tax rate range is significantly lower than what is globally regarded as an effective rate to persuade real change in GHG emissions.
The design of the carbon tax recognises that a smooth transition to a low carbon economy in a sustainable manner requires time, therefore a phased in approach and significantly high level of tax-free allowances will ensure that South Africa’s competitiveness is not being compromised and aid in the protection of vulnerable households.
The finance minister also noted that with introduction of the carbon tax on June 1, 2019, section 12K, which deals with the tax exemption for income generated from the sale of certified emission reduction credits, will be repealed to avoid the same emission reduction leading to both an income tax exemption and a reduced carbon tax liability for the same taxpayer.
Sumeshni Poonan-Girdhari is Tax Manager, Corporate Tax at KPMG. She can be contacted at 071 633 4595 or email [email protected] For further details on carbon tax, its implementation and how KPMG can assist, please contact Tasnim Bux on [email protected] to RSVP for our Tax Pulse to be held on June 12, 2019.