The Carbon Tax: Implications for South African Industry

Climate change is one of the most defining concerns of our time. Its impact is immense and unknown in scale, and as a result, urgent and drastic action is required globally to combat it. South Africa is the fourteenth largest greenhouse gas emitter worldwide, indicating its more significant role in this resolution.

To mitigate the effects of climate change, South African President Cyril Ramaphosa signed into law the Carbon Tax Act No. 15 of 2019, which came into effect on 1 June 2019. The tax is targeted at businesses and organisations that emit a high level of carbon, polluting the atmosphere. The most predominant industries responsible for these emissions are those that rely on fuel consumption and electricity generation.

Mazars Director of Tax Consulting, David French, notes that the tax is “a complex piece of regulatory framework that will have a severe cost impact on many large businesses – especially those in the industrial sectors.” He further explains that “businesses will have to rely heavily on auditors who can advise from a risk and control perspective, tax consultants with an in-depth understanding of the Carbon Tax Bill to calculate and correctly apply tax credits, and experienced sustainability consultants who can advise on strategies to reduce operational carbon emissions.”

The Carbon Tax Bill is set to unfold in two phases – the first having already occurred on 1 June 2019 and the second expected to begin in 2023. The overall intent is to gradually increase the Carbon Tax burden on companies and industries over time, allowing the country more sustainable practices and minimising company operational costs. Moreover, consumers and manufacturers are significantly considered with the hope that a shift in their behaviour will eventually lead South Africa into a low-carbon economy.

How does it work?

Liability

Combustion (carbon dioxide), process (chemical transformation of raw materials), and fugitive (leaks and other irregular gas releases) emissions can incur a tax dependent on the applicable threshold. A 10 MW installed thermal input capacity threshold has been set for combustion activities that result in emission. While several process and fugitive emissions do not have a threshold, tax is expected regardless.

Emission Measurements

Your organisation will only pay tax on your actual emissions despite a combined capacity over the threshold, indicating a liability to Carbon Tax. This, however, has proven difficult and expensive to determine.

Allowance

The Carbon Tax is geared towards implementing several mechanisms that reduce its burden. Significantly, a 60% allowance for all emissions and a 10% allowance for process and fugitive emissions are granted.

Environmental accountability is increasingly considered, becoming the new norm and companies seeking innovative means to reduce any negative ecological impacts, especially their emissions footprint. It is vital to be actionable now that to bear severe consequences in the future.

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