Articles

Carbon Tax Bill – Now Carbon Tax Act 15 of 2019

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

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

The Regulator submitted that what Section 124 does is to depart significantly from the Common Law by permitting set-off, but subject to stringent safeguards that are designed to protect the consumer. None of the above-mentioned safeguards exist under Common Law principles, instead it is left to the consumer to identify any set-off that may be unlawful and to pursue a remedy, such as prescription, at the consumer’s own cost.

Further, the Regulator submitted that if the Banks interpretation is accepted it would completely undermine the importance of the NCA’s purpose. They further provided that this would effectively render Section 124 nothing but a meaningless dead letter. The Regulator provided that the reason for this is because the Banks’s interpretation provided a credit does not contain an express provision permitting set-off, falls outside the regulatory ambit of Section 90(2)(n) and Section 124, rendering the Common Law application of set-off acceptable. They are of the view that it would be absurd if credit providers could simply avoid the consumer safeguard provided in Section 124 by not saying anything in their credit agreements about set-off.

The South African Human Rights Commission (hereinafter referred to as the SAHRC), similarly submitted that the Banks interpretation of the NCA undermined the debt review scheme established under the NCA. Further, the SAHRC submitted that the Banks interpretation was inconsistent with several constitutional rights, in particular the socio-economic rights of consumers as well as their fundamental right to dignity. The SAHRC was of the view that the Regulators interpretation is to be preferred.

In its approach to the interpretation of the NCA, the Respondent (the Bank) focused on the language of the provisions, in particular that of Section 90(2)(n). The Bank accepted that that interpretation is holistic in nature and involves taking into account the context and purpose of the legislation in question. The Bank, however placed emphasis on the fact that courts cannot lose sight of the actual words used by the lawmakers. In particular, the courts cannot, under the guise of interpreting words, impose a view of what the policy or object of a statute is or should be.

The Bank argued that with their interpretation, the Regulator and SAHRC ignored the actual and plain wording of the provisions, leapfrogging over the words themselves to get a meaning that in their view represented a better policy outcome for consumers. According to the Bank. Section 90(2)(n) cannot be interpreted to apply to a Common Law set-off because common-law set-off is not dependent on any contractual nexus between the parties, as it applies ex lege. They accordingly provided that, is only if the Bank wishes to depart from the Common Law and apply a different form of set-off, that it must make provision for this agreement itself.

The bank further argued that had it been the intention of the lawmaker to oust the application of Common Law set-off to credit agreements under the NCA, this would have been made clear. They also argued that their interpretation of the NCA is compatible with the objects and purposes of the NCA.

Decision of the Court

The court was not prepared to accept the interpretation of Sections 90(2)(n) and 124 as contended for by the Bank. The court was of the view that the interpretation is not plainly indicated by the wording of the Sections, nor is it consistent with the underlying purposes of the NCA, or the context within which the NCA was adopted. It is also provided that this interpretation does not promote the basic constitutional rights of consumers – the right to socio economic welfare, dignity and possibly property are concerned. It was further provided that to accept the Banks interpretation would amount to ignoring the fact that the NCA was specifically adopted to break with the past regulation of consumer credit that rendered a few safeguards to consumers.

Keightley is of the view that the purpose of Section 124 was precisely to effect that break from Common Law passed that was necessary in order to achieve the underlying objects of the NCA. Further Keightley provided that even though it does not expressly oust the continued application of Common Law set-off in parallel with Section 124, its meaning and effect is to do so.

Having regard to the above, Keightley therefore concluded that, in light of Sections 90(2)(n) of the NCA, the Common Law right to set-off is not applicable in respect of credit agreements that are subject to the NCA.

This judgment has and will continue to provide much needed clarity on the position in law and marks the end of a practice where set-off is applied without any notice to or authorization by the consumer.

Mihlali Mzileni – 10/07/19

Comments are closed.

  • Contact Us

    Email Us:
    [email protected]

    Port Elizabeth
    4 Cape Road, Central,
    Port Elizabeth
    Tel: 041 506 3700

    East London
    123 Western Avenue, Vincent,
    East London
    Tel: 043 050 4205

    Grahamstown
    1 Oatlands Road,
    Grahamstown
    Tel: 046 940 0092

  • Newsletter Sign Up

  • BEE Profile

    We are a Level 1 contributor in terms of the BBBEE Act, in compliance with the amended codes of good practice.

We use cookies to help improve your experience of our website by measuring how it's used. Read our Privacy policy for more information.