New Carbon Tax Bill to raise operational costs for businesses across South Africa

The new Carbon Tax Bill that has come into effect in South Africa as of June 1st is set to inflict substantial costs on businesses in the country as they look to transform their operations in line with the new stipulations, according to Director of Tax Consulting at Mazars David French. 

The new tax bill comes among a range of regulatory changes in the taxation space for South Africa, some of which are aimed at ensuring compliance and cutting down default rates, while others are directed at more relevant business reforms. Sustainability is one such reform.

Investing in sustainability has constituted the major share of corporate social investment activity in South Africa in recent years, and a number of experts have urged for the economy to be restructured along the lines of sustainable development. The Carbon Tax Bill is a policy manifestation of this sentiment.

The bill will be introduced in two stages, the first of which began on the 1st of June. This stage will continue till December 2022, following which the second stage will commence in 2023. The gradual implementation will allow time and space for businesses to realign their operations to ensure proper compliance.

To this end, taxes will first be imposed on the overall greenhouse gas emission levels over a financial period. These taxes will be imposed at R120 for every tonne of CO2 or other greenhouse gases, including methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons and sulphur hexafluoride.

David French believes that this prolonged process of compliance is likely to be constly. “This is a complex piece of regulatory framework that will have a severe cost-impact on many large businesses – especially those in the industrial sector,” says French.

“In light of this, businesses will have to rely heavily on auditors who can advise from a risk and control perspective, tax consultants with an in-depth understanding of the Carbon Tax Bill in order to calculate and correctly apply tax credits, and experienced sustainability consultants who can advise on strategies to reduce operational carbon emissions.”

“It is also important to note that carbon taxes will be imposed on liquid fuels at source, as an addition to the current fuel taxes; as well as on stationary emissions, that will be determined by source category as stipulated in the National Environmental Air Quality Act,” he adds.