THE introduction of a carbon tax is likely to have a great effect on the cost structures of South Africa’s smokestack industries, say analysts. The government has provided little detail about the mooted carbon tax, but some tax and legal professionals believe a further announcement is likely in the first half of this year, if not in this week’s budget.
The government first suggested the tax seven years ago. The idea was further expounded in a 2010 discussion document, titled Reducing Greenhouse Gas Emissions: The Carbon Tax Option, which proposed an impost of R120 per ton of carbon. By the time of last year’s budget speech the idea for the tax had become more complex. It then included a proposal to use offsets to comply with a percentage of tax liability, and breaks for trade-exposed sectors.
A planned commencement for the 2013-14 tax year was mentioned in last year’s budget speech.
The carbon tax joins a list of similar taxes that have already been implemented.
A vehicle emissions tax was introduced in 2010.
South Africa, with its vast coal reserves, is among the most intensive emitters of greenhouse gases in the world. It has voluntarily committed to reducing carbon emissions 34% by 2020.
Henk Sa, MD of the carbon consultancy, management and financing firm EcoMetrix Africa, says if the tax is introduced at a rate of R120 per ton of carbon emission, Eskom would be by far the biggest contributor at an estimated R11bn per year.
This is close to the R13.2bn profit it made in the year to March 31 2012.
The power utility contributes the biggest share in the R12bn-R17bn per year the state hopes to gain from the tax, says Mr Sa.
Sasol’s contribution to the tax would come in at about R3bn a year. This represents 12% of its profit for the year to June 30 2012. One of the Durban Chamber of Commerce and Industry’s main criticisms of the tax is that the government will be the highest payer, and a "revolving door" on the payment of tax does not make sense.
Exempting state operations from the tax will negate the effect of the tax, given its aim of reducing emissions.
Another criticism business has levelled against the carbon tax is the absence of clarity on the monitoring, reporting and verification. Edward Nathan Sonnenbergs (ENS) environmental department senior associate Andrew Gilder says it is likely that a "small industry" will emerge with the introduction of the carbon tax. The services it will render including auditing, consulting, carbon emission control, tax services and advice. This will present additional costs.
Mr Gilder says questions that the government needs to answer include how emission verification will be done. Will additional staff be employed, will an independent company be contracted for the work or will there be a verification authority?
Environmental issues can no longer be viewed as a "like to have" or a "reluctant spend", Mr Gilder says. This is because of the direct financial impact on business of environmental considerations. Carbon emission monitoring is already being done at many companies.
ENS executive Mansoor Parker says there are a range of other tax considerations that might arise with the introduction of carbon tax for which there are no clear answers as yet. Carbon reduction or energy renewal equipment is costly.
The question is then whether it would be possible for companies to claim accelerated depreciation allowances for new renewal energy equipment or capacity, Mr Parker says.
Another question is how companies will be able to use carbon credits against their carbon tax liabilities.
Would companies, for example, be able to qualify for the 150% research and development tax incentive if they did research into carbon sequestration?
The failure by local and provincial authorities to properly monitor the existing air quality legislation is another gripe.
The Durban Chamber of Commerce and Industry argues that too little thought has been given to the use of the revenue from the tax and that a clear plan should be presented on how the it will be spent.
This is important because there is little information from the government on how much is being raised from other environmental taxes such as the electricity generation and fuel levies. Further, it is not known how existing levies are spent.
Norton Rose’s head of tax, Andrew Wellsted, says the government’s silence on the introduction of carbon tax suggests it may have to delay its implementation.
Ross Robertson, associate director at Norton Rose, says the silence on the carbon tax may mean a realisation of the complexity of introducing and administering such a tax.
However, it will be difficult to say nothing about such an important topic during this week’s budget speech.