Carbon Tax: Dangers and opportunities

And what it means for companies.
Image: Carla Gottgens/Bloomberg

Many South African companies face unprecedented dangers amid the coronavirus crisis, with the economic impact of the lockdown on an already contracting economy.

In these circumstances it is vital for any company to plan their tax affairs carefully.

Hence the focus by Cova Advisory on new Carbon Tax details, which have only recently been published by the Treasury.

Understanding them is challenging, not least because there is not yet total clarity on all aspects of the regulations and how to claim each and every allowance.

However, failing to examine, to assess and then to act will mean that company executives are neglecting an opportunity to make savings – especially on a tax some corporates are resistant to pay in the first place.

A concern with the Carbon Tax is the way in which information and legislation has dribbled out, in a frustratingly unpredictable way after the tax has been implemented. It is vital that all the rules around the carbon tax are clear so that companies can plan to reduce their carbon footprint and thereby reduce their carbon tax liability. The fundamental purpose of the tax is to change behaviour, and by implication, a business will want to pay as little as possible.

We attempted to tackle this in a recent webinar, which looked at some of the allowances under the Carbon Tax Act, and the ways to reduce your carbon tax liability.  Some of the main messages are summarised below.

For anyone who is not familiar with the structure of the Carbon Tax Act, the tax is levied on the direct emissions of a company over a calendar year.

The act was signed into law on May 23, 2019, and became effective on June 1, 2019. The design of the tax includes a number of tax-free allowances, which effectively reduce the amounts which need to be paid over to the fiscus.

Regulations have been published for these tax-free allowances. Most recently, the regulations for trade-exposed sectors were published. In addition, we now have the regulation for the allowance if a company is able to emit lower emissions than others in their sector.

We almost have a complete picture, but one more part of the Carbon Tax that is crucial for claiming the allowances is yet to be launched – and that is the carbon offsets administration system and its associated guidelines.

So, what is new?

We now have a better idea of what it means for a company to be considered as trade-exposed, and how it must go about claiming the allowance.

Companies that are trade-exposed are those which face competition from products that are imported or exported. Companies that manufacture products locally and are subject to the Carbon Tax may become less competitive if the same products are being imported and are not subject to a Carbon Tax. For this reason, the National Treasury included a tax-free allowance of up to 10% for these companies.

There is a sector-based approach, where the trade intensity index of each industry sectors is defined, and the allowances are allocated using a sliding-scale approach.  However, there are provisions for companies which operate in more than one sector.

The approach seems logical, but there are still some uncertainties that exist with the determination of company-specific trade-exposure allowances, relating to the type of import, export and production data to be used. In addition, there isn’t clarity on auditing requirements.

Further calculation and analysis will also be needed by a company when it comes to claiming an allowance under the Performance Benchmark Regulations.

The regulations include a set of greenhouse gas intensity benchmarks for certain sectors, and the better a company performs against these benchmarks in containing its emissions, the higher the allowance – which is capped at 5%.

However, it isn’t always clear how these benchmarks are calculated as the methodologies will need to be requested, the measurement and verification requirements of the regulations are not defined, and some sectors have been left out.

In addition to all of this, there are further areas to explore in reducing your Carbon Tax burden.

There is a Renewable Energy Premium credit which will reduce the Carbon Tax for entities which generate electricity from green technology, such as wind and solar. Details of the rates for each renewable energy type have now been published and will be updated annually.

Finally, companies must consider the carbon offset allowance for firms that have undertaken a carbon-offset project – that is a project which results in emission reductions and which has been registered under an accredited standard.

The administrative rules on this are incomplete – as we still await a carbon offset administration system to create a South African based registry for carbon credits. It is the system that will be used to transfer carbon credits from an international registry into South African Carbon Credits which can then be used as a carbon offset allowance to reduce your Carbon Tax liability.

To conclude, then, companies need to ensure that as a starting point to manage their Carbon Tax liability, they need to quantify their gross tax liability and then fully understand which allowances are worth pursuing.

There are still some gaps and uncertainties in the Carbon Tax legislation – but one thing which is certain is that it can make financial sense to invest time and effort to get the most out of the trade exposure, performance benchmark and carbon offset allowances.

Zelda Burchell is manager at Cova Advisory.

COMMENTS   6

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

So the government will collect carbon taxes off businesses as though it cares for the environment (if it cared a fig, it would never have built the world’s biggest coal fired power stations).

And the taxes will be applied to what!? Government employee salaries, and SOE bailouts of course. Well, that’s if it’s not just looted.

Sounds like a huge success story for the environment.

Carbon tax is an absolute farce because Eskom is by far the biggest producer of greenhouse gasses. However, they get an exemption in phase one, but in 2023 phase two kicks in for them. Eskom’s carbon tax bill is estimated to be at R11.5bn, per annum. We all know they cannot pay it since they already have debts of R450bn, so I am sure the ANC government will give them an extension again (if Eskom still exists in 2023). Meanwhile the rest of us suckers will have to pay carbon tax in order to force us to ” change our behaviour and reduce our greenhouse gas emissions” or whatever…. Climate change is in any event unproven. According to Al Gore, the Maldives would have been under water by now.

Its a money making scam

Hit the nail on the head.

This is why socialist governments all over the world have pumped global warming/ greenhouse gases/ now climate change for decades. They were running out of other peoples money to spend – so they created carbon taxes.

Anyone notice how a lot of Covid 19 company bail outs are conditional on the adoption of what are in some cases, ludicrous new green and totally uneconomical and unsustainable ‘rules’.

The climate horse was well and truly flogged to death, having its blow off top – with angry little Greta, a total flop. Enter stage left covid 19 and shortly our new covid 19 taxes, all linked to new green ideals.

So you see same contents – different package/ presentation = same result: access to huge amounts of money and new huge amounts of ‘justified’ taxes.

The 200+ year, forever failing global socialist experiment continues. Although on covid they have really outdone themselves – the poverty created in this lockdown, will likely take a few hundred million lives in the next 10 years = to the death toll of the whole 200yr experiment to date.

If anyone believes that they can change the weather with a tax they are highly delusional. All this will do is drive up the cost of manufacturing things with China laughing at western stupidity. China makes the turbines and solar panels as the west can shoot themselves in the foot, hobbling their own industries and impoverishing their own citizens. The money will be sucked out the productive economy and squandered in the usual fashion. In Australia the Labor regime of Gillard and her filthy commo/ green alliance introduced a carbon tax. They have been sidelined ever since. Hopefully this will be the ANC’s demise. All the opposition has to do is to campaign on a eliminate the carbon tax ticked.

It will be interesting to see what the Carbon Tax for Sasol will be.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: