A tax of ZAR120 ($13) on each ton of carbon dioxide emitted will be levied on businesses, rising by 10% each year. However the tax will not be imposed until January 1 2015.
“Business in general is not in favour of a carbon tax and the introduction of a carbon tax requires substantial investment in a monitoring process as well as the necessary infrastructure to ensure and measure compliance,” said Izak Swart of Deloitte in South Africa.
“Certain companies have raised objections to the tax,” agreed Gerhard Badenhorst, head of indirect tax at ENS – Taxand. “My understanding is that the delay also allows companies time to review their manufacturing processes and to make the necessary improvements where possible.”
Swart says that as there are no real alternatives to Eskom – the main electricity supplier and carbon emitter in South Africa –the introduction of the carbon tax would indirectly imply that consumers will be expected to absorb a hike in the price in electricity 4.8 cents per KWh.
“Not taking carbon tax into consideration, businesses in South Africa are currently under severe pressure. Increases in fuel and electricity prices, to name just a few of the contributing factors, have added significantly to the cost structure of doing business in South Africa,” said Swart.
“The carbon tax will not only add additional overhead costs to businesses as a result of its Scope 1, but will also increase the existing cost structures of these businesses,” he added.
Badenhorst agrees that the carbon tax will require companies to review their manufacturing processes and to reduce their carbon emissions, otherwise it will have an impact on their profitability.
Swart argues that more discussion should take place on the proposed carbon tax given South Africa’s heavy reliance on fossil fuels for its energy mix.
“The dynamics surrounding the structure of the tax, as well as tax incentives, to specifically cater for trade exposed industries and industries to which limited process and equipment improvements are available would also need to be investigated to ensure that the tax achieves the required outcome – which is to reduce the greenhouse gas emissions of South Africa,” said Swart.
Other than the case of India’s relatively low tax on coal, South Africa will be the first developing country to introduce a carbon tax.
“The risk for South Africa therefore exists that all the perceived advantages of investing in a developing country could be eroded by a carbon tax, which would discourage international companies from investing in South Africa or established manufacturers to relocate to countries with a more favourable operating environment,” said Swart.
Swart says that this would apply particularly to energy intensive sectors where South Africa’s traditionally low electricity price is seen as a competitive advantage.
