Publication of the 2019 Carbon Tax Act
The President has signed into law the Carbon Tax Act No 15 of 2019, which comes into effect from 1 June 2019, as announced by the Minister of Finance in the 2019 Budget. The Act was gazetted on 23 May 2019 (Gazette No. 42483), together with the Customs and Excise Amendment Act No. 13 of 2019 (Gazette No. 42480). Climate change represents one of the biggest challenges facing human kind, and the primary objective of the carbon tax is to reduce greenhouse gas (GHG) emissions in a sustainable, cost effective and affordable manner.
Government has outlined its strong commitment to play its part in global efforts to mitigate GHG emissions as outlined in the National Climate Change Response Policy (NCCRP) of 2011 and the National Development Plan (NDP) of 2012. South Africa subsequently set its own domestic targets as outlined in the Nationally Determined Contribution (NDC), which was incorporated as the South African commitment in the Paris Agreement (convened by the United Nations Framework Convention on Climate Change (UNFCCC). South Africa ratified the Paris Agreement in November 2016. The carbon tax forms an integral part of ensuring that South Africa meets these targets.
The Carbon Tax Act gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment decisions. Firms are incentivized towards adopting cleaner technologies over the next decade and beyond.
The carbon tax will initially only apply to scope 1 emitters in the first phase. The first phase will be from 1 June 2019 to 31 December 2022, and the second phase from 2023 to 2030.
The design of the carbon tax also provides significant tax-free emission allowances ranging from 60 per cent to 95 per cent in this first phase. This includes a basic tax-free allowance of 60 per cent for all activities, a 10 per cent process and fugitive emissions allowance, a maximum 10 per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5 per cent for companies that reduce the emissions intensity of their activities, a 5 per cent carbon budget allowance for complying with the reporting requirements and a maximum 10 per cent allowance for trade exposed sectors.
The introduction of the carbon tax will also not have any impact on the price of electricity for the first phase. This will result in a relatively modest carbon tax rate ranging from R6 to R48 per tonne of CO2 equivalent emitted, which is a relatively low tax rate to further provide current significant emitters time to transition their operations to cleaner technologies through investments in energy efficiency, renewables and other low carbon measures.
A review of the impact of the tax will be conducted before the second phase, after at least three years of implementation of the tax, and will take into account the progress made to reduce GHG emissions in line with our NDC Commitments. Future changes to rates and tax-free thresholds in the Carbon Tax will follow after the review, and be subject to the normal transparent and consultative processes for all tax legislation, after any appropriate Budget announcements by the Minister of Finance.
The 2019 Customs and Excise Amendment Act and Memorandum on the objects of the 2019 Customs and Excise Amendment Bill are also published. This Act contains provisions related to the administrative arrangements for the collection of carbon tax revenues by SARS. It was split from the Carbon Tax Act as a separate Act for technical legal reasons related to money bills not containing administrative provisions in terms of section 77 of the Constitution.
Annexure A below sets out the extensive consultation process of over 9 years before the Carbon Tax Act was passed by Parliament, as well as the complementary measures announced by Government to mitigate any adverse impact of the Act. Engagements also took place between key stakeholders within NEDLAC to develop a jobs mitigation and creation plan and ensure a just transition to a low carbon economy.
The Final Response Document on the 2018 Carbon Tax Bill and the Explanatory Memorandum to the 2018 Carbon Tax Bill are also published on the National Treasury website. The Final Response Documents take into account inputs made by stakeholders, the Standing Committee on Finance and Portfolio Committee on Environment and the Select Committee on Finance, submissions and decisions made following further consultation during the NEDLAC process.The Acts can be found on the National Treasury (www.treasury.gov.za) and SARS (www.sars.gov.za) websites (but also on the normal government printing works website, where all gazettes are officially published).