inance Minister Pravin Gordhan delivers the country’s budget speech in February. Picture: TREVOR SAMSON
TONGUE TWISTING: Finance Minister Pravin Gordhan delivers the country’s budget speech in February. Picture: TREVOR SAMSON

THE Treasury’s decision not to abolish the levy on electricity from nonrenewable resources, as was announced by Finance Minister Pravin Gordhan during his budget speech this year, has caused dismay in business circles.

The Treasury released the revised carbon tax proposals late last week, and the public has until August to comment on them.

South Africa plans to introduce carbon taxation in January 2015.

The levy, payable by Eskom on all electricity produced from nonrenewable sources (more than 90% of South Africa’s electricity), is passed on to consumers by the state-owned enterprise.

Business Unity South Africa (Busa) special policy adviser Raymond Parsons says the Treasury’s decision not to abolish the levy, "which is essentially a tax on carbon", is "inconsistent" with Mr Gordhan’s budget speech promise to do so, and is seen as "double taxation by many business people".

Busa will take this up in its submission on the long-awaited revised proposals, he says.

Director of carbon trade advisory firm Promethium Carbon, Robbie Louw, says it is "bad news" that the levy will stay, despite Mr Gordhan’s promise it would go.

The Treasury’s economic tax analysis chief director, Cecil Morden, says Mr Gordhan’s "promise" was the result of confusion caused by poor word choice in his budget speech — the idea was to "phase down" the levy, not phase it out.

"It was introduced first as a demand management tool, and to signal the intent of the carbon tax," the chief director says.

He adds that money from the levy, comprising a 0.5c/ kWh charge, is for funding repairs of roads, particularly in Mpumalanga, that are damaged by coal trucks.

A 1c/kWh levy for Eskom’s solar water heater subsidy programme was introduced to make electricity charges more transparent.

When the levy was introduced in 2009 — just the 0.5c roads charge — it was "hidden" in the electricity tariff. The 1c was added later.

"If (business sees) it as double taxation, they must explain what they mean. If you pay income tax and VAT, is that double taxation? .... At least this (levy) is explicit. Do they want it back in the (electricity) tariff?" he asks.

"In the latest Nersa (National Energy Regulator of South Africa) approval (of electricity price hikes), they said a portion of Eskom’s request was already funded. It’s in the levy," Mr Morden says.

In February, Nersa allowed Eskom an average 8%-a-year electricity tariff increase until 2018, half the 16% it wanted.

Mr Morden said the levy would "lessen over time, but we will have to see the timing of that".

The new plan raises the thresholds beyond which the tax is payable; allows offsets, and suggests "recycling" revenue into incentives and subsidies to invest in low-carbon technologies.

However, business warned that despite the lower rate, the proposed tax would raise the costs of doing business in South Africa. Despite the soft start, the Treasury warned that in the initial five-year phase the tax rate would be raised 10% a year, and a revised carbon tax with lower tax-free thresholds and a revised rate would start on January 1 2020.

The Treasury has proposed a tax of R120/ton of carbon dioxide equivalent above the tax-free threshold — generally 60%, but 70% for Eskom — and the ability to offset emissions, for example through carbon trade. Carbon dioxide, the most ubiquitous of the greenhouse gases linked to climate change, has become a proxy for them all.

The ability to offset emissions would be phased out over time.

It is estimated between R8bn and R30bn will be collected each year, depending on final allowances and exemptions, Mr Morden says.

There is a proposed 60% emission-free threshold, meaning the effective tax rate would be between R12/ton and R48/ton of carbon dioxide equivalent — "significantly lower" than the expected R50-R60/ ton, Mr Louw says.

Another positive shift is an effective step away from the Treasury’s refusal to "ring fence" revenue to "constructive discussion of the possibilities of revenue recycling and also tax shifting", Mr Louw says.

Mr Morden says the potential revenue that could be gathered through the tax could be used to extend the government’s quota of free basic electricity to poor households, and to subsidise public transport, expanding the network and making it more accessible.

South Africans already pay unofficial carbon taxes, and paid R11bn last year, according to Treasury records.