The Act came into effect on 1 June 2019.
Global warming and climate change is drastically changing every aspect of the environment in general. The objective of the Act is to provide for the imposition of a tax on the carbon dioxide (CO2) equivalent of greenhouse gas emissions; and to provide for matters connected therewith. The preamble of the Act details reasons such as climate change, global warming and environmental degradation as factors negatively impacting upon the future generation.
Important definitions from the Act:
“carbon dioxide (CO2) equivalent’’ which means the concentration of carbon dioxide that would cause the same amount of radiative forcing (the difference of sunlight absorbed by the Earth and energy radiated back to space) as a given mixture of carbon dioxide and other greenhouse gases.
“emissions’’ means which means the release of greenhouse gases or their precursors; or the release of greenhouse gases and their precursors, into the atmosphere, over a specified area and period of time;
“Tax period”– commencing on 1 June 2019 and ending on 31 December 2019; and subsequent to the period contemplated in paragraph (a), the period commencing on 1 January of each year and ending on 31 December of that year
The rate of the carbon tax on greenhouse gas emissions must be imposed at an amount of R120 per ton carbon dioxide equivalent of the greenhouse gas emissions of a taxpayer.
The amount of tax payable by a taxpayer in respect of a tax period must be calculated in accordance with the formula:
X = <{[(E – S) x (1 – C)]-[D x (1-M)]} + {P x (1 – J)} + {F x (1 – K)}> x R
To find each of the variables above, there are formulas for each one of them.
The Act essentially brings into effect the “polluter-pays principle” which will inevitably put pressure on big industrial corporations to find more sustainable production processes as they will be “penalized” for emitting co2 emissions or its equivalent which is above the threshold. There are thresholds for each type of activity sector, e.g Energy, Fuel Combustion Activities, Energy Industries (including heat and electricity recovery from Waste), Main Activity Electricity and Heat Production (including Combined Heat and Power Plants) and Petroleum Refining. Each of these activity sectors will have a certain threshold for co2 emissions. This is contained in schedule 2 of the Act which also contains the threshold for each type of activity sector.
In order to lessen the blow, there will be various allowances, including a 60% basic tax allowance which means corporations will be paying R48 per ton instead of the rate of tax being R120 per ton of co2.
The Act is set to be implemented in phases with phase one applicable from 1 June 2019 to 31 December 2022. Phase two will start in 2023. This approach will see the carbon tax burden increasing over time, with the aim of shaping the behaviour of both producers and consumers and motivating them to adopt a methodical transition towards a low-carbon economy through the use of cleaner technologies. This approach will also mean that businesses will need to make use of auditors who can advise from a risk and control perspective, tax consultants with an in-depth understanding of the Carbon Tax Bill in order to calculate and correctly apply tax credits, and experienced sustainability consultants who can advise on strategies to reduce operational carbon emissions.
