The 2017 Budget Speech was delivered by Minister Pravin Gordhan on 22 February 2017. Although tax was a large focus in this year’s budget (as it usually is), the proposed carbon tax only received a cursory mention. The Minister confirmed that the proposed carbon tax and its date of implementation will be considered further in Parliament this year.

The 2017 Budget Review, which supplements the 2017 Budget Speech, states that a revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017 and that the latest developments include the following:

• During the first phase of the tax (until 2020), there will be no impact on the price of electricity; and
• A revised regulation for the carbon offset allowance, enabling firms to reduce their carbon tax liability, will be published by mid-2017.

National Treasury published the Draft Carbon Tax Bill for comment in November 2015 with the intention that carbon taxes would be implemented in a phased manner with effect from 1 January 2017.

The purpose of the 2015 Draft Carbon Tax Bill is to address impacts of climate change and to facilitate a viable and fair transition to a low-carbon economy for South Africa and therefore combat Green House Gas (“GHG”) emissions.

If implemented as envisaged in the 2015 Draft Carbon Tax Bill, the carbon tax will be paid in to the National Revenue Fund and will be applicable to activities and industries that require fossil fuel inputs such as electricity and heat production; refineries; the transport sector; surface and underground coal mining (in respect of fugitive emissions); industrial processes and product use emissions such as coal gasification; and the production of cement, iron, steel and glass.

The 2015 Draft Carbon Tax Bill also makes provision for a carbon offset allowance which enables firms to reduce their carbon tax liability by using offset credits of up to 10% of their total GHG emissions. The Draft Regulations on Carbon Offset in terms of the Draft Carbon Tax Bill were published for comment in June 2016. As per the 2017 Budget Review, these regulations are also to be revised.

It is also important to keep in mind the Draft National Greenhouse Gas Emission Reporting Regulations (“the Draft GHG Regulations”) to be made in terms of the National Environmental Management: Air Quality Act 39 of 2004.  These were published for comment on 7 June 2016. The 2015 Draft Carbon Tax Bill states that it will, when enacted, be applicable to a person if “that person conducts an activity as set out in Annexure 1 to the Notice issued by the Minister responsible for environmental affairs in respect of the declaration of greenhouse gases as priority air pollutants under section 29(1) read with section 57(1) of the National Environmental Management: Air Quality Act, 2004 (Act No. 39 of 2004)”.

Once the Draft GHG Regulations are finalised and promulgated, they will constitute the “Notice” mentioned in the above extract. The purpose of the Draft GHG Regulations is to create a national database by introducing a single national reporting system for the transparent reporting of GHG emissions. The Draft GHG Regulations set out the various categories of emission sources to which they apply.

These emission sources are similar to the activities and industries listed in the 2015 Draft Carbon Tax Bill that are to be subject to carbon tax. As such, the Draft GHG Regulations provide clarity on the activities and industries in respect of which carbon tax will be payable. It will therefore be necessary to read any revised draft of the Carbon Tax Bill with the Draft GHG Regulations.

Although there has been slow progress in the finalisation of this tax, it is important to keep the likelihood of this tax coming into force in mind considering that a revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017.
 

Fasken Martineau