Carbon tax offsets on the way

Tax offsets plan almost ready for Parliament

sent to clients 12 Aug     Only a little reminding is needed that 29 July 2016 was the deadline for comments to carbontax1Treasury on the forthcoming carbon tax offsets plan which Minister of Finance, Pravin Gordhan, has promised will come into effect 1 April 2017 with some saying it might even be as early as 1 Jan 2017.

It was in 2014 that National Treasury published the first carbon tax discussion paper for public comment. It was agreed the that such a tax would be phased in over a period of time, the first phase running up to 2020. The marginal rate was the envisaged at R120 per tonne of CO2 and during phase-one, a basic percentage based threshold of 60% will apply for tax offsets below which tax is not payable in order to assist with transition into the new scheme.

SARS as usual

Everything has been based on South Africa’s commitment to the Copenhagen agreement signed in 2009 to reduce greenhouse gas emissions by 34% by 2020 and 42% by 2025 – below the “business as usual” scenario.   The motivation provided for the tax remains as “so the cost of climate change an be reflected in the price of goods and services”.

sanedi carbon capIt was agreed that the tax would be administered by SARS.    Since that date, whilst the pro and cons of such a tax caused heated debate in some circles as to whether an introduction of a price mechanism could influence consumer and producer behaviour, the inclusion of Eskom in the tax net left many feeling somewhat helpless due to the utility’s enormity.

Eskom maybe dictates

OUTA complained that “Eskom’s various electricity tariff increases of almost three times the rate of consumer price inflation over the past eight years has become a tax of its own on society.”

They added that the electricity increase impact had resulted in fact to a reduction in electricity and energy as a result and this, which coupled with reduced production and consumption, had inadvertently caused a reduction of greenhouses gases having already taken place, OUTA said.   Of course, this remains totally unproven.

Neither Cabinet nor Treasury/SARS have replied to OUTA’s call to note “unintended consequences”.  No Treasury official it appears has felt that the Copenhagen Agreement can be dis-respected and have presumably felt that OUTA’s platform that a drop in national growth, due to global events and construction problems, has had little to do with the actual design of an overall process to cut carbon emissions over the next period of fifty years or so. The argument continues.

Quantifiable is the word

Now the first phase of the tax offsets are being set in concrete with Treasury having called for comment on theemissions final formula for the first phase of tax proposals, proposing, as before in the draft, that companies can reduce their liability for carbon tax by up to 5% or 10% of their total greenhouse gas emissions, depending on their sector, by investing in qualifying projects that result in quantifiable greenhouse-gas reductions.

Treasury says that the qualifying investments and offsets are likely to be in sectors such as agriculture, public transport, forestry or waste management and the accompanying documents note…“The proposal to use carbon offsets in conjunction with the carbon tax has been widely supported by stakeholders as a cost-effective measure to incentivise GHG emission reductions.”

How not to pay tax….offsets

“Carbon offsets involve specific projects or activities that reduce, avoid, or sequester emissions, and are developed and evaluated under specific methodologies and standards, which enable the issuance of carbon credits”, SARS concludes.

It is worth noting that tax legislation usually comes in the form of a “money” Bill which Parliament can debate butgreen scorpion not amend. Should the debate raise issues, then Parliament can address Treasury who will, according to their dictates, reconsider and change if they alone see fit.  

The general feeling seemed to be from hearings was that this event had to happen in line with other established economies, although OUTA has remained strong on its views that Eskom as a major player in the energy mix is distorting the situation.

The Treasury website has all the details of rules on which tax regulations will be based.
Previous articles on category subject
Treasury’s plan for carbon tax – ParlyReportSA
Carbon offsets paper still open – ParlyReportSA
Carbon Tax under attack from Eskom, Sasol, EIUG – ParlyReportSA
Treasury sticks to its guns on carbon tax – ParlyReportSA

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