By Jason Daniel, Senior Tax Associate, PwC
Alongside the Environmental Levy on Carbon Dioxide (CO2) emissions of motor vehicles, the South African government introduced a carbon tax which became effective on 01 June 2019, levied at a tax rate of R120/tCO2e. Carbon tax must be levied in respect of the sum of the scope 1, direct Greenhouse Gas (“GHG”) emissions of a taxpayer, in respect of a tax period expressed as the CO2e of those GHG emissions resulting from fuel combustion, industrial processes and fugitive emissions.
Impact on the automotive sector
The so-called Phase 1 of carbon tax will run from 1 June 2019 to 31 December 2022 and is referred to as the transitional phase, to afford taxpayers with the time and flexibility to make the necessary changes required to become less carbon intensive. Any adjustments to the Carbon Tax Act beyond the first phase will depend on the GHG emissions efficiency achieved and the South African economy. National Treasury has expressed that Phase 1 is aimed to ensure emitters are given time to transition their operations to cleaner technologies through “investment in energy efficiency, renewables and other low carbon measures”.
Carbon Tax will inevitably force industry into changing habits. Given the global impetus to address climate change and supporting “green” initiatives, consumers are becoming more and more conscious about purchasing “cleaner” products. It is important for South African companies to change their ways, in order for these companies to compete globally. This would include the adoption of cleaner energy methodologies.
South Africa is one of the most carbon intensive country’s in the world, this unwelcomed title is considerably concerning, as countries and businesses are progressively shifting away from carbon intensive activities and jurisdictions. The European Union recently announced, as part of its Green Deal, the implementation of a border carbon tax from 2023 – which effectively aims to tax imports from less climate virtuous countries. Global trends, aimed at combatting climate change, places South Africa in a precarious situation, which may negatively impact South African companies, should South African companies fail to address the call to limit so-called “dirty” energy and proactively implement renewable energy and energy efficiency measures.
A recent study by TIPS, highlighted how South African exports are consequently much more carbon intensive than other counties, “South Africa is an outlier at the global level. South African manufacturing exports have a carbon content of about 2,250 tCO2e per US$ million, while most countries sit between 300 and 1 100 tCO2e per US$ million.”
Some of South Africa’s leading exports are set to be displaced by the transition to a low-carbon economy. Automotive related exports including passenger vehicles, trucks and catalytic converters will be deeply affected by the shift to e-mobility. It is imperative that the automotive industry utilises Phase 1 of Carbon Tax to assess the impact environmental taxes will have on the industry globally and to determine what can be done to limit the risk and impact of carbon tax on their business.
It is anticipated that Carbon Tax is just one of the measures employed by the South African government, as is evident from the Finance Minister’s 2020 Budget Speech government is preparing to publish an environmental fiscal reform review paper, highlighting the arsenal of weaponry at the government’s disposal, to ensure South Africa meets their obligations in terms of their commitment under the United Nations Framework Convention on Climate Change (known as “the Paris Agreement”). The South African Government will explore the potential for new environmental taxes and reforms to existing instruments, such as, inter alia, restructuring the general fuel levy to include a local air pollution emissions component; alleviating traffic congestion through road pricing charges and design options for an annual carbon dioxide tax on vehicles, in collaboration with the Department of Transport and provincial governments; reviewing inefficient fossil fuel subsidies, including the VAT zero-rating of transport fuels and reviewing the tax treatment of company cars to incentivise use of more fuel-efficient vehicles.
Contact: Jason Daniel
Email: [email protected]