South Africa: Carbon Tax – Liable Entities

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

Most Read Contributor in South Africa, November 2016

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
 
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”

Mondaq Advice Centre (MACs)
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
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.