The Carbon Tax Act is a relatively recent piece of legislation having been passed into law with effect from 1 June 2019. It is likely that the pace of legislative amendments and administrative guidance will remain strong in the foreseeable future as organisations of all shapes and sizes and across all industry sectors adapt to the implications of a price on carbon. The regime has created an expansive regulatory framework that assigns responsibility for different aspects of the carbon tax regime to the South African Revenue Service, the Department of Forestry, Fisheries, and the Environment and the Department of Energy. Over time these initiatives will have a transformative effect on the South African economy. This article contains a summary of recent carbon tax developments.

carbon budgets

On 11 October 2021 the National Climate Change Bill was published, requiring the Minister of Forestry, Fisheries and Environmental Affairs to allocate a carbon budget to any person that conducts a greenhouse gas emitting activity listed in terms of section 23(2). In terms of section 23(2) the Minister must, by notice in the Gazette, publish a list of greenhouse gas emitting activities that emit one or more of the greenhouse gases listed in terms of section 23(1) and which the Minister reasonably believes cause or are likely to cause or exacerbate climate change.

The approach adopted in the Climate Change Bill involves imposing the carbon tax and the carbon budget on all entities that are expected to be regulated by each instrument. Many entities will be subject to a carbon budget and will also have to pay carbon tax on all of their emissions. Entities whose emissions are within their carbon budget do not receive any additional concessions other than the allowances and deductions to which they already are entitled in the Carbon Tax Act.

Significantly, section 24(3) states that where the carbon budget as allocated to a person for any period under review is exceeded, that person will be subject to a higher carbon tax rate on emissions above the carbon budget as provided for in the Carbon Tax Act. In order to give effect to these provisions, amendments shall be made to the Carbon Tax Act to provide for the higher carbon tax rate. Hence the penalty for exceeding the carbon budget will be a higher rate of carbon tax.

In contrast, there is no provision that permits an entity to carry forward its unused budget. For instance, if an entity is allocated a carbon budget of 100 for 3 years and the carbon dioxide equivalent of its greenhouse gas emissions is 90 in year 1 then its carbon budget will remain 100 in year 2. The saving of 10 in year 1 carbon budget will not increase to 110 in year 2. The rationale for this approach is presumably that such an entity already benefits by paying less carbon tax.

In addition, a person to whom a carbon budget has been allocated must prepare and submit to the Minister, for approval, a greenhouse gas mitigation plan.

Taxation Laws Amendment Bill 2021

On 28 July 2021 the Taxation Laws Amendment Bill 2021 "TLAB 2021" was published proposing amendments to numerous provisions in the Carbon Tax Act. These include clarification concerning the beneficiaries of the renewable energy premium. Unlike the allowances reducing a taxpayer's carbon dioxide equivalent emissions "CO2e emissions", the renewable energy premium provides for a rand-for-rand deduction against the taxpayer's carbon tax liability.

The renewable energy premium deduction reduces "the amount of tax payable by a taxpayer in respect of the generation of electricity from fossil fuels". The words "in respect of" suggest that where a taxpayer carries on multiple emissions generating activities including the generation of electricity from fossil fuel and it purchases renewable electricity, then it can only claim the renewable energy premium deduction against the carbon tax liability that arises from the generation of electricity from fossil fuel instead of its total carbon tax liability.

However, the actual formula by which the carbon tax of fossil fuel electricity generators is determined requires the deduction of the renewable energy premium from "the amount of tax payable in respect of a tax period determined in terms of section 6(1)" of the Carbon Tax Act which suggests that the renewable energy premium may be deducted from the total carbon tax liability.

Hopefully, this issue will also be explained in the proposed clarifications to the renewable energy premium.

carbon offsets

On 8 July 2021 amendments to the Carbon Offsets Regulations were published. The Carbon Tax Act makes provision for the carbon offset allowance permitting taxpayers to reduce their carbon tax liability by either 5 or 10 per cent of their total greenhouse gas "GHG" emissions through investment in projects that reduce their emissions provided that these projects occur outside their taxable activities.

Among the amendments made was the suggestion that the current wording in the Carbon Offsets regulations could be interpreted to mean that a taxpayer claiming any section 12L allowance for any project will be prohibited from claiming any carbon tax offsets allowance, despite the project being completely unrelated. Since this was not the intention of the legislation, a new sub-regulation 4(2) was inserted to specify the exclusion of 12L projects as eligible carbon offsets. It specifies that: "A taxpayer may not receive the allowance in respect of an offset of a project in which any allowance has been received in terms of section 12L of the Income Tax Act, 1962 (Act No. 58 of 1962)".

carbon tax renewals

On 2 July 2021, SARS issued a carbon tax communique, informing taxpayers that the validity period for licenses for customs and excise manufacturing warehouses for the generation of emissions liable to carbon tax is from the effective date until 31 December 2021 and thereafter 31 December of the following year. All such licensees must annually apply to renew their licences on or before 31 December of each year, as from 2021, by submitting an updated form for licensing (DA185 and its annexure DA185.4B2) with the required supporting documents to the SARS Excise Registration and Licensing Hub at Alberton branch office.

The deadline for renewals on or before 31 December of each year, is confusing as SARS normally requires renewal applications to be made 30 calendar days before it expires. We recommend that taxpayers exercise caution and submit their renewal applications before the end of November 2021. The reference to required supporting documents is a departure from the previous practice that no supporting documents were required for renewal applications. And the reference to the SARS Excise Registration and Licensing Hub at Alberton branch office appears limiting as SARS usually accepts renewal applications at their Alberton, Bloemfontein, Cape Town, Durban, Port Elizabeth, Pretoria, Stellenbosch and Upington branches.

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.