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Implementations of Carbon Tax

2017/18 South African National Budget Expectations

The budget speech that will be delivered in February 2017 will hopefully provide more details on the planned implementation of a carbon tax. You would be forgiven for thinking you’ve heard this before. Indeed, we have had the same message since 2014’s budget speech only to be disappointed time after time.

However, the world of carbon tax has moved on significantly since 2014 and even more so since 2010 when a carbon tax policy paper was first published. In 2010 very little carbon tax was levied on emissions worldwide. The World Bank now estimates that in 2016 15% of all global emissions will be subject to a tax or a pricing mechanism. The Paris Agreement has brought more pressure on all countries to conform in pricing carbon emissions, be it via a carbon tax or a carbon pricing mechanism. China, the world’s largest emitter, is in the process of establishing a carbon price to reduce its emissions. Collectively the world is now moving towards pricing carbon emissions.

South Africa itself has a budget deficit to deal with and a carbon tax and other similar taxes such as a sugar tax could easily reduce the deficit significantly, thereby making it more likely that the tax will be introduced sooner rather than later.

National Treasury has already released a draft carbon tax bill with a planned implementation date of 1 January 2017. Many comments were made on the draft bill and a new draft bill is expected early in 2017 with the view of implementing the legislation in 2018.

The draft legislation, although seemingly not overly complex, has numerous outstanding issues that needs to be addressed in the revised legislation. Possibly one of the more pressing issues is at what level of emission a company would need to require to pay a carbon tax. It is unclear from the legislation what this level would be. Also it is unclear who the taxpayer will be. Some indicates that it would be groups of companies when tax is normally levied at company level.

Although a carbon tax is relatively simple in structure, its implementation is likely to be difficult. This is because carbon taxes are based on fossil fuel consumption, and this is not currently measured in the same amount of detail as expenditure and revenue, and is usually not as readily available as financial line items. Systems will need to be in place to measure consumption.

Hopefully the budget speech will provide clarity on the introduction of a carbon tax so that taxpayers can start to prepare for its introduction.

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