Deloitte executive breaks down provisions of the new Carbon Tax

27 August 2019 2 min. read
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While the new carbon tax being implemented in South Africa is likely to prove a significant weight on businesses across the country, Director of Global Investment and Innovation Incentives at Deloitte Africa Izak Swart has pointed out the various allowances that exist for businesses in the initial stages of implementation. 

The tax was initiated in June this year, and will levy a charge on those businesses that have an installed thermal input capacity of more than 10 megawatts (MW), according to Swart. Within this bracket, businesses will be taxed in accordance with their differing emission levels. 

Since the tax has been introduced, a number of business leaders in the country have voiced their criticism on the new legislation. The tax is aimed at reducing carbon emissions and making South Africa’s business environment ecofriendly, which has been applauded by many, particularly as South Africa is among the top 15 countries in the world when it comes to greenhouse gas emissions.

However, many are concerned about the economic impact that this may have, at a time when the South African economy is looking to trace its path to recovery. The increased operational costs that the new tax will bring are perceived by some as a hindrance to growth amongst the domestic business environment.

Deloitte executive breaks down provisions of the new Carbon Tax

The tax is also likely to have a significant impact on the mining sector, which is among the largest contributors to the South African economy. Many have also criticised the lack of clarity in the new legislation, a point that is highlighted by Swart as well with respect to measuring emissions.

“While having a combined capacity over the threshold means your activities are subject to carbon tax, you will only pay the tax on your actual emissions. However, these are both difficult and expensive to accurately measure,” he explains.

“South African emitters will instead have the option to use the ‘emission factors’ established by the Intergovernmental Panel on Climate Change. These are factors that give an approximation of greenhouse gasses emitted depending on how much fuel was combusted, or product was produced. Over time, more accurate domestic emission factors will be developed for use in South Africa,” adds Swart.

However, Swart also points out that the negative impact for operations can be mitigated to some extent, given that businesses can receive a number of allowances through provisions on the tax. Allowance are in place for trade exposure, performance, participation in the carbon budget, and investments in reducing emissions.