Electricity + Control February 2017

TRANSFORMERS + SUBSTATIONS

Financial Implications of Carbon Tax Liability

Silvana Claassen, CES South Africa

The aim of this article is to clarify how a company’s carbon tax liability is determined, the amount payable, and relief-systems available for companies to reduce their tax payable.

H appy 2017! It is likely that this is the year during which the carbon tax regulation will finally be implemented in South Africa. This topic has been subject of discussion among governments and industry since over a decade. Publication of the Draft Carbon Tax Bill (November 2015) and the Draft Carbon Offset Paper (June 2016) and the development of a Car- bon Offset Administrative System as well as a National Atmospheric Emissions Inventory System (NAEIS) are all signals affirming that the infrastructure of a carbon tax system has been designed and is ready for the carbon tax regulation to come into effect. South Africa has committed to contribute to the global effort to stabi- lise greenhouse gas concentrations in the atmosphere at a level that keeps the average global temperature from rising more than 2°C. This commitment means that South Africa has to reduce its greenhouse gas emissions significantly which can only be achieved by reducing the carbon intensity of its economy. Policy-measures will be introduced and implemented, forcing companies to invest in energy-saving and cleaner technologies. To achieve the desired emissions reduction outcomes, South Africa wants to deploy a mix of measures among which the carbon tax. The carbon tax is expected to generate price signals that will stimulate industry and businesses to align their strategies to a low carbon economy. Background and purpose of the proposed carbon tax

How is a company’s carbon tax liability determined? For companies and businesses, two main questions are important when it comes to the carbon tax:

1. Is my business liable to paying carbon tax? 2. What is the amount of the carbon tax payable?

The answer to these questions is described in the Draft Carbon Tax Bill that was released by National Treasury on 2 November 2015 for public comment. However, in conjunction with Annexure I of Notice 172 of 2014, published in the GG No. 37421 of 14 March 2014. The latter document lists the activities that are subject to the carbon tax. Basically, the Draft Carbon Tax Bill states that a person (which includes a partnership and a trust) is liable to pay carbon tax if that person conducts an activity as set out in this list. During the first phase of the implementation of the carbon tax (2017 - 2020), the effective carbon tax payable is determined by three main parameters: 1. The total scope 1 (or direct) emissions of the liable entity 2. The maximum applicable allowance (determined by the sum of different types of allowances applicable to the liable entity [1] 3. The carbon tax rate; which is determined by National Treasury in the Draft Bill at R120 per tonne of CO 2 -equivalents emissions Let’s assume a construction company with 60 000 tCO 2 e scope 1 emissions in a given tax-year [2]. Construction-activities are listed in Annexure 1 of Notice 172 of 2014 as referred to by the Carbon Tax Bill. The table in Schedule 2 of the Draft Carbon Tax Bill [3] sets out the allowances that are applicable per sector, including the maxi-

Electricity+Control February ‘17

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