South Africa: Carbon Tax – Liable Entities

Last Updated: 3 December 2015
Article by Mansoor Parker and Andrew Gilder

Most Read Contributor in South Africa, August 2018

On Monday 2 November 2015, the South African National Treasury published a Draft Carbon Tax Bill (the "Bill") for public comment, with the comment period commencing immediately and continuing until 15 December 2015.

Among the themes that we will be exploring in this series of articles on the Bill are the aspects of the carbon tax regime that will feel out-of-the-ordinary for professional tax practitioners. Like the phenomenon to which it is intended to respond, namely climate change (as much an economic challenge as an environmental one), a comprehensive response to the carbon tax will require tax professionals to look beyond their usual sphere of operations and to cooperate with professionals from a range of other disciplines. This is also a function of the tax design which encompasses elements of tax law, carbon markets law, environmental law and financial and operational strategy. While this theme will be explored more fully in later articles in this series, this article sets the scene by considering a fundamental connection established by the Bill between tax law and environmental law.

Our point of departure is to consider the simple question of which entities will be carbon tax liable and to provide a high level/first response to the question. Making this determination is slightly more complex than one would imagine. Section 2 of the Bill provides that there "...must be levied and collected for the benefit of the National Revenue Fund, a tax to be known as the carbon tax". Section 3 of the Bill is the charging provision and it provides that:

"A person is—

(a)  a taxpayer for the purposes of this Act; and

(b)  liable to pay an amount of carbon tax...,

if that person conducts an activity as set out in Annexure 1 to the Notice issued by the Minister responsible for environmental affairs in respect of the declaration of greenhouse gases as priority air pollutants under section 29(1) read with section 57(1) of the National Environmental Management: Air Quality Act, 2004 (Act No. 39 of 2004)" (our emphasis).

The following elements of the emphasised portion of section 3 warrant some consideration:

  • "conducts an activity";
  • "Annexure 1 to the Notice... in respect of the declaration of greenhouse
    gases as priority air pollutants" and;
  • "issued by the Minister responsible for environmental affairs."

Conducts an activity

The suite of discussion documents that has, hitherto, explained Treasury's intentions in relation to the design and application of the carbon tax, provides only an indication of the sectors that will be susceptible to carbon taxation. This permitted educated guesses to be made in relation to whether particular entities would be tax liable, especially for major sectoral players, e.g., in the energy generation sector. The Bill is more specific on who will be tax liable and relies upon a legal construction that is fairly typical in South African environmental law, namely the idea of a person who "conducts an activity".

The "conducting of activities" that may have detrimental impact on the environment, e.g., infrastructure development activities, emitting activities which have implications for air quality or waste management activities, triggers the obligation for the person conducting the activity to make application for and to obtain a permit or license that authorises the conduct of that activity prior to its commencement. Given that carbon tax is aimed at pricing greenhouse gas emissions in the South African economy and that such emissions have an air quality/environmental impact, the carbon tax design looks to air quality/environmental legislation to determine liability for carbon tax. In short, in order to ascertain carbon tax liability, one must consider Annexure 1 to the Notice mentioned in section 3 of the Bill.

Annexure 1 to the Notice in respect of the declaration of greenhouse gases as priority air pollutants

In terms of section 29 of the National Environmental Management: Air Quality Act 39 of 2004 ("NEMAQA"), which provides for pollution prevention plans, the Minister of Environmental Affairs ("Minister") may declare any substance contributing to air pollution as a priority air pollutant and require persons falling within a category specified in the notice to prepare, submit for approval, and implement pollution prevention plans in respect of a substance declared as a priority air pollutant. On 14 March 2014, the Minister gave notice in the Government Gazette of her intention to declare a basket of six greenhouse gases or, cryptically, any other gases as priority air pollutants and to require any person falling within the specified category to prepare and submit for approval, a pollution prevention plan under section 29(1), read with section 57(1) of NEMAQA ("Proposed Declaration").1The Proposed Declaration lists the initial six greenhouse gases provided for in the Kyoto Protocol as priority pollutants in respect of which pollution prevention plans must be prepared. The gases are the following: Carbon Dioxide (CO2); Methane (CH4); Nitrous Oxide (N2O); Hydroflurocarbons (HFCs); Perfluorocarbons (PFCs); and Sulphur hexafluoride (SF6).

Sub-Regulation 3 of the Proposed Declaration provides that a "...person conducting an activity set out in Annexure 1 to (the) Notice (in which the Proposed Declaration appears) which involves the emission of greenhouses (sic) declared as (sic) priority air pollutant  ... in excess of 0.1 Megatonnes (109) (Mt) or more annually or (sic) measured as C02-eq is required to submit a pollution prevention plan". Annexure 1 to the Notice comprises the following table:

Emission Sources

Activities

Fuel combustion (both stationery and mobile)

Energy industries

  • Electricity and heat production
  • Petroleum activity (refineries)

Manufacturing industries and construction

  • Chemicals

Transport sector

  • Civil aviation
  • Road transportation
  • Railways
  • Water-borne navigation

Other sectors

  • Commercial / institutional
  • Residential
  • Agriculture / forestry / fishing

Fugitive emissions from fuels

  • Surface and underground coal mining
  • Processing of coal
  • Storage of coal and wastes
  • Processing of sold fuels

Industrial processes and other product use

Mineral production

  • Cement production
  • Lime production
  • Glass production

Chemical production

  • Ammonia production
  • Nitric acid production
  • Carbide production
  • Titanium oxide production

Metal industry

  • Iron production
  • Steel production
  • Ferroalloys production
  • Aluminium production
  • Lead production
  • Zinc production

Agriculture, forestry and other land use

Livestock

  • Enteric fermentation
  • Manure management

Land

  • Forest land
  • Cropland
  • Grassland
  • Wetlands
  • Settlements
  • Other land

Aggregate sources and non-Co2 emissions on land

  • Biomass burning
  • Liming
  • Urea application
  • Direct N2O emissions from managed soils
  • Indirect N2O emissions from managed soils
  • Indirect N2O emissions from manure management

Waste management

  • Solid waste disposal
  • Wastewater treatment and
    discharge
  • Industrial waste
    disposal

The net result of section 3 of the Bill, is that persons who conduct the activities listed in the abovementioned table will be liable to pay the carbon tax. The actual financial exposure will depend on a variety of factors, particularly the efficiency with which the allowances permitted in the Bill to limit such exposure can be utilised. These factors will be discussed in later articles in this series.

It is very important to note that the threshold of 0.1 Megatonnes of emissions of greenhouse gas which limits the requirement for the preparation and implementation of pollution prevention plans to persons that have emissions in excess of this volume, does not apply to the carbon tax. This is because section 3 of the Bill does not provide that persons required to prepare and implement pollution prevention plans are carbon tax liable, but rather that persons who conduct the activities listed in the Annexure to Notice declaring greenhouse gases as priority pollutants are liable. This clarifies an uncertainty that had crept into the carbon tax discourse over whether, in addition to the percentage allowances provided for in the Bill which can limit carbon tax exposure, there was also a threshold of absolute emissions (derived from reporting or other legal requirements imposed by the Department of Environmental Affairs) below which no carbon tax would be payable. Instead, the explanatory memorandum which accompanies the Bill states that for stationary emissions, reporting thresholds will be determined by source category as stipulated in the National Environmental Air Quality Act of 2004. Only entities with a thermal capacity of around 10MW will be subject to the tax in the first phase (2017 - 2020). This threshold is, according to the explanatory memorandum, in line with the proposed Department of Environmental Affairs greenhouse gas emissions reporting regulation requirements and the Department of Energy's energy management plan reporting.

We are expecting the Draft Declaration to be formally promulgated in due course, but for the moment the document remains only in draft. We have previously discussed the Proposed Declaration here.

Issued by the Minister responsible for environmental affairs

Returning to the theme that the carbon tax will pose unusual challenges to the tax professional by creating connections between the tax legal regime and other legal regimes, such as those for the environment and climate change, the crux of the Bill (the determination of who will be carbon tax liable) relies very firmly on a declaration of the Minister of Environmental Affairs made for the specific purpose of dealing with an adverse air quality impact. While the sense of this connection is obvious from the environmental objective of the Bill (to reduce industrial greenhouse gas emissions), the approach is novel in South African taxation law.

One other aspect is that the carbon tax will be implemented as an "environmental levy" under the Customs and Excise Act No. 91 of 1964. This connection of the Bill to another legal regime harks back to the Draft Environmental Fiscal Reform Paper (Treasury, April 2006), which is the first comprehensive discussion of the use of financial instruments to deal with environmental challenges in the economy. This aspect of the carbon tax will be explored in a future article in this series.

This is the second in a series of articles that we are drafting/have drafted on the draft Carbon Tax Bill. Other articles in the series can be found here.

Footnote

1 NEMAQA section 29 empowers the Minister to declare a substance to be a priority pollutant, with the consequent requirement tor emitters of priority pollutants to prepare and implement pollution prevention plans, while section 57 provides for a stakeholder process to be undertaken in respect of the declaration of priority pollutants – hence the Proposed Declaration having been published for public comment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions