Since the Draft Carbon Tax Bill was released in November 2015 (see our carbon tax news item of 11 April 2016), National Treasury has held various stakeholder engagements. Although various issues are now clearer, a number of issues are still being finalised. The next draft Carbon Tax Bill is expected by late August or September this year. Herewith an update since our last carbon tax news item.
Commencement Dates. If the parliamentary process goes according to plan, National Treasury will commence with the Phase 1 tax on 1 January 2017. The agricultural sector is exempt from Phase 1 and will only be taxed from Phase 2, which commences in 2020. Even though Phase 1 has now been delayed by two years (the original commencement date was planned for 2015), National Treasury has indicated that Phase 2 will NOT be delayed – 2020 looms large for the agricultural sector. National Treasury also confirmed that the Department of Environmental Affairs (DEA) has started with Phase 2 planning for the agricultural sector, but could not provide any further details.
Increase in the Carbon Tax Rate. The initial carbon tax policy paper stated that the carbon tax rate will increase by 10% per annum for the first five years, but this has been removed in the draft bill. The draft bill now states that the annual increase will be at the discretion of the Finance Minister.
Reporting. National Treasury indicated that carbon tax reporting will be done through the National Atmospheric Emissions Inventory System (NAEIS). Reporting through NAEIS will be done by activity and the system then calculates the associated emissions. The NAEIS portal can be accessed from: https://saaelip.environment.gov.za/SAAELIP/home/
Auditing. Unfortunately SARS was not present at this specific stakeholder engagement and Treasury was unwilling to discuss any administrative or auditing issues without SARS’ presence.
Sequestration. A carbon sequestration rebate will be included in the bill requiring producers to prove their sequestration activities. The methodology is still being developed by the DEA.
Offsets. National Treasury released the Draft Offset Regulations on 20 June 2016. The regulations provide organisations with guidelines to reduce their carbon tax liability by 5 to 10% of their total greenhouse gas emissions by using carbon offsets. Only carbon offsets projects located in South Africa will be eligible and the following standards are recognised in the draft regulations:
- Clean Development Mechanism (CDM);
- Verified Carbon Standard (VCS);
- Gold Standard (GS); and
- local standards/methodologies (to be approved and independently verified).
The draft regulations identified the following indicative list of eligible offset projects for the agricultural sector:
- Restoration of sub-tropical thicket, forests and woodlands;
- Restoration and management of grassland;
- Small scale afforestation;
- Biomass energy;
- Anaerobic biogas digesters; and
- Reduced tillage.
Tax Deductibility. It is still yet to be finalised as to whether the carbon tax will be tax deductible (like income tax) or not tax deductible (like sin taxes).