On 22 May 2019, President Cyril Ramaphosa assented to the long-awaited Carbon Tax Act, 2019, which was gazetted on 23 May 2019. The same day, the President also assented to the Customs and Excise Amendment Act, 2019, which amends the Customs and Excise Act, 1964, so as to make provision for the administration and implementation of carbon tax.
In a nutshell, the Carbon Tax Act imposes a carbon tax of ZAR120 per tCO2-eq, which will increase annually at a rate of inflation plus 2% until 31 December 2022, and in line with inflation thereafter. The carbon tax liability is calculated as the tax base (sum of greenhouse gas (GHG) emissions from combustion, industrial processes and fugitive emissions in accordance with a reporting methodology approved by the Department of Environmental Affairs, proportionately reduced by certain tax-free allowances) multiplied by the rate of the carbon tax.
In order to facilitate carbon tax, the Department of Environmental Affairs (DEA) has implemented a mandatory GHG reporting system comprising the following regulatory mechanisms:
- the declaration of GHGs as priority air pollutants;
- the development of the National Air Emission Inventory System (NAEIS) as an on-line GHG Reporting System; and
- implementation of the National Reporting Regulations to regulate the reporting of data and information from identified point, non-point and mobile sources of atmospheric emissions to the NAEIS towards the compilation of atmospheric emission inventories.
The South African Revenue Service (SARS) will be the administrative authority to implement the tax liability assessment. SARS has published draft rules, schedules and forms for the implementation of carbon tax, to provide details on the envisaged carbon tax administration, including the registration of clients, licensing of emissions facilities, carbon tax environmental levy accounting and application of allowances as rebates. The draft rules are open for public comment until 14 June 2019.
Many countries around the world have implemented carbon taxes as a mechanism to curb GHG emissions in line with their corporate environmental responsibilities and international obligations. South African businesses have a matter of days before they face the reality of the implementation of the carbon tax and associated administration related to carbon emission tracking and management when both the Carbon Tax Act and the Customs and Excise Amendment Act take effect on 1 June 2019. Now is the time for business to assess its risk exposure to the carbon tax and to understand the complex landscape which taxpayers will have to navigate in relation to items such as the submission and verification of accounts and collection and payment of the tax.