On the 2nd of November 2015, the National Treasury published the draft Carbon Tax Bill for public comment.  Public comments were due by the close of business on the 15th of December 2015.  This Bill follows from the 2011 National Climate Change Response Policy and the National Development Plan.  In addition South Africa has made submissions to the United Nations wherein it has committed to reduce greenhouse gas admissions by up to 42% by 2025.

The Bill introduces a Carbon Tax which in essence prices the carbon which is emitted by “the polluter”.  The goal of the Carbon Tax regime will be to reduce the impact of climate change by means of creating a low carbon economy. 

The fishing companies, being consumers of diesel in their daily operations, will be affected by this Carbon Tax.  Liability for the tax arises for entities that emit greenhouse gas (‘GHG”) emissions from various sources both direct and indirect. Of course the diesel combustion on fishing vessels and in processing will lead directly to GHG emissions. As a consequence the entities that own or control these sources of emissions will be liable for carbon tax.

At this stage the Carbon Tax applies to all sectors and activities except the agriculture, forestry and other land use and waste sectors which will apparently be exempt during the first implementation phase which ends in 2020.  However, the media statement introducing the publication of the Bill indicated that “the final tax rate and exemptions are still to be determined by the Minister of Finance through the annual budget process”.  In addition the media statement confirms that regulations would have to be passed with regard to certain emission intensity benchmarks for the various sectors and these benchmarks will be based on inputs received from the respective industry associations – the benchmarks will be used to establish if “polluters” are performing or under performing which in turn will determine whether the polluter qualifies for a specific tax free allowance. These benchmarks must be based on acceptable methodologies.  It is therefore of vital importance to the fishing industry and in particular those sectors which utilise the most carbon fuel to engage the necessary consultants and to make substantive submissions to treasury.

The Carbon Tax will be administered by SARS and tax payers will need to submit tax returns based on their own assessment of emissions.

In brief a company’s Carbon Tax liability will be calculated by utilising the volume of GHG emissions (which in turn is based on the quantity of fossil fuel used) multiplied by a specific emission factor.  Schedule 1 of the draft Act provides various emission factors for energy combustion.  The results of this calculation will give a basic tax base which in turn may be reduced by the several allowances which can be applied.  During the first phase of implementation (ie up to 2020) the following allowances are stipulated:

  • A basic 60% tax free threshold during the first phase of the Carbon Tax up to 2020;
  • A further 10% tax free allowance for process emissions;
  • An additional tax free allowance for trade exposed sectors of up to 10% – this would apply to many fishing companies as they are trade intensive by nature and are exposed to trade and international competitiveness;
  • Recognition for early actions or efforts to reduce emissions would give rise to another tax free allowance of up to 5%;
  • Carbon offsets can give rise to tax free allowances of 5 to 10% – carbon offsetting works by means of the purchasing of carbon credits which are sold in metric tons of carbon dioxide equivalent.  In essence the carbon offsetting process delivers finance to renewable energy projects which generate reductions in greenhouse gas emissions;
  • An additional 5% tax free allowance may be achieved by companies which participate in a carbon budgeting system in the period up to 2020.

Thus during the first phase of the Carbon Tax regime up to 2020 there will be available tax free exemptions ranging between 60 and 95% of total emissions. As a result Carbon Tax will be imposed on between 5-40% of actual emissions during this period.

The initial marginal Carbon Tax rate is set at R120.00 per ton of carbon dioxide emissions. Taking into account the said tax free thresholds, the effective Carbon Tax rate will therefore vary between R6.00 and R48.00 per ton of carbon dioxide emissions.  To gauge the effect of the carbon tax on the fishing industry one need only take into account that in the trawl sector for a period of 280 sea days in a season, vessels may use between 3 up to as much as 12 tons per day of diesel and in the small pelagic sector up to 2.5 tons per day.  A basic example of a Carbon Tax liability for a fleet owner with 5 trawlers would be as follows:

  • 5 vessels @ say 5 tons of fuel per day x 280 days = 7000tons of diesel
  • 7000 tons of diesel x the diesel (off road) GHG emission factor per ton of 3.1 = 21700 CO₂ equivalent;
  • With the effective Carbon Tax rate being between R6 and R48.00 per ton of CO₂ equivalent (depending on which tax free allowances apply) ,  Carbon Tax for the 5 vessels per year would  amount to between R130 200.00 to R1041 600.00.

As can be seen, the Carbon Tax even in the initial phase up to 2020 with high allowances will still have a significant effect on fishing companies – these allowances will most likely be reduced after 2020.

Treasury has stated in policy documents that the carbon tax “design” has taken into account “the need for a long and smooth transition to a low carbon economy in a sustainable manner.”  Their argument is that the high tax free allowances and phased in approach will ensure that South African competiveness is not compromised.  Treasury have also stipulated that during the initial 5 years the tax will be “revenue neutral”.  In this regard they have indicated that the revenue will be “recycled” by means of reducing the current electricity levy, by means of a credit rebate for the renewable energy premium, by means of a tax incentive for energy efficiency savings and increased allocations for free basic electricity / alternative energy funding for public transport and by means of initiatives to move some freight from road to rail.

It remains to be seen whether in fact the carbon tax will be revenue neutral as one doubts whether everyone will benefit from the aforesaid incentives to the same degree.

Suffice to say, it is important at this stage for industry through its associations to appoint a consultant to head up representations to be made to Treasury in order to protect fishing industry interests.


On 16 November 2015 the Minister of Agriculture, Forestry and Fisheries published the final Sector Specific Policies for the Allocation of Rights in the Abalone, Fish Processing Establishment, Hake Inshore-Trawl, Horse Mackerel, Kwazulu-Natal Sardine, Beach-Seine, Large Pelagic Longline, Net Fish, Patagonian Toothfish, Seaweed, West Coast Rock Lobster Nearshore and the West Coast Rock Lobster Offshore Fishery Sectors together with the generic Application Form and the schedule of fees payable in respect of applications.


With the publication of these sector policies it is apparent that the Minister and the Department of Agriculture, Forestry and Fisheries (“DAFF”) will be pushing through with their undertaking to run the Fishing Rights Allocation Process 2015/2016 (“FRAP 2015/2016”) as promised. It is quite apparent that the initial proposed timeline has not been achieved and that somewhere along the line they have lost approximately 30 days and as such the pressure will be on applicants to complete the application forms and submit them timeously and on DAFF and the Minister to get decisions out by the promised deadline of 29 February 2016.


Application forms were made available for collection from 23 November until 11 December 2015 and while the application forms make no mention of a hand in date a document published on the DAFF website dealing with “Frequently Asked Questions“ suggests that receipting of applications will take place from 11 January 2016 until 22 January 2016. No further details have been provided in this regard. Effectively this provides applicants a minimum period of 31 days to complete their application forms and submit them with a maximum period of 60 days if they made use of the full time allotted.


What is immediately apparent from the generic application form for commercial fishing rights appearing in the Minister’s Government Gazette of 16 November 2015 is that the application forms have changed substantially from the drafts that were circulated earlier in the year for comment. The final application forms require far more work and require far more detail to be inserted. A perusal of the application form also raises similar questions to those that arose in FRAP 2013 regarding the assessment of applicants, particularly with respect to the issue of employment. In the 2005 Rights Allocation Process applicants were permitted to represent themselves in economic units in order to take into account the fact that employment and investment did not necessarily appear in the applicant itself but in entities in which it had invested. The simplest scenario in this regard is where 2 Right Holder applicants hold quotas which are in themselves not viable enough to sustain investment in a vessel but come together and form a joint venture entity in which they both have shareholding to own that vessel. In 2005 the applicants would have been able to claim the employment created through the joint venture entity (rightly so in our opinion) as it was employment created directly by the applicants. In the FRAP 2013 Process, however, DAFF chose to ignore economic units and stated on record that applicants could only rely on employment created if the employees were in the name of the applicant. This means that jobs created in the joint venture company (in the scenario above) although created directly by 2 applicants would never be counted in the application process and could not be relied on upon by the applicants thereby prejudicing their applications and chance of being allocated a right. The big question is how will DAFF approach this in FRAP 2015/2016? A number of parties went on record in the FRAP 2013 process stating that this was an obvious incongruency in the process and resulted in some applicants being preferred over others in an inequitable manner. That being said if this was the high water mark of the problems with the FRAP 2013 process I think the fishing industry would have been able to accept it.


That being said FRAP 2015/2016 is a new Rights Allocation Process and after the controversy surrounding FRAP 2013 it is hoped that DAFF will approach FRAP 2015/2016 in a more logical and transparent manner. As it is, applicants will be hard pressed to complete their applications on time and the administrative requirements of having to have all documents certified as true copies as well as having the application form initialled by a Commissioner of Oaths on all pages will place additional time pressure on applicants.


Of course it is not only the FRAP 2015/2016 process and the completing of application forms that is likely to cause prospective applicants stress but the looming spectre of the implementation of the Small Scale Fisheries Sector is also likely to raise blood pressure levels in the commercial fisheries sectors. On Wednesday 25 November 2015 a meeting was held in Cape Town to discuss the proposed TAC/TAE apportionments between sectors relating to the Small Scale Fisheries Sector. At first glance it would appear that the traditional offshore commercial sectors will not be shedding effort or tonnage to the Small Scale Fishery and that the traditional inshore fisheries will be called upon to subsidise the introduction of the new sector. In particular Abalone appears destined to be exclusively a Small Scale Fisheries Sector. Why, one must ask, is there then a policy for the allocation of rights in the sector which advises applicants that they will be granted rights for a period of 15 years? In addition to the Abalone Sector it appears that the KZN Beach Seine Sector along with the Nett Fish and Seaweed Sectors will be split equally between the traditionally commercial rights holders and the Small Scale Sector. The Traditional Linefish Sector will see an increased portion of its effort allocated to the Small Scale Fishing Sector while the Commercial West Coast Rock Lobster Operators all shed an additional 27% of the TAC to the Small Scale Fisheries. White Mussels will also become the exclusive domain of the Small Scale Fisheries Sector and no commercial rights holders will be entitled to operate in the sector.


It is quite apparent that the 2016 year being the year in which rights will be allocated and the Small Scale Fisheries Sector will (possibly?) be enacted and allocated its first rights is going to be a big year for the South African Fishing Industry. It is clearly apparent that the introduction of the Small Scale Fishery Sector will weigh heavily on the decisions that the Minister takes in allocating rights as the traditional commercial rights pie gets smaller and smaller not only due to decreasing TAC’s but also due to the requirement to effectively implement DAFF’s vision of a productive Small Scale Fisheries Sector.


All prospective applicants are to approach the FRAP 2015/2016 process with prudent caution and to ensure that applicants are not excluded due to the failure to follow the very basic and simple rules. It is presumed that the Minister will look to exclude any non-compliant applicants as this will be the easiest way to minimize the impact on other rights holders and to try to ensure that allocations remain viable. Make sure that you follow all the instructions and all the rules in the completion of your application form. Make sure that if you have any questions that you submit them in writing to DAFF and that you get a response to be kept on record for later use if necessary. Make sure you have your application form and make sure your application form is submitted on time. Take note of the exclusionary criteria as well as the requirements for lodgement and what issues will make your application materially defective. All that being said I wish all applicants in the FRAP 2015/2016 Process the best of luck and (hopefully) a prosperous 2016.



One of the principles of the South African Value Added Tax (‘VAT”) system is that VAT at the standard rate is imposed when movable goods are supplied in or imported into the Republic of South Africa (“RSA”) and VAT at a zero rate may be charged by an RSA vendor where movable goods are exported. As such, when a Seller of a second hand vessel sells to a foreign Purchaser it is often taken for granted that VAT on the sale will be zero rated. However, in terms of the “Export incentive scheme in terms of paragraph (d) of the definition of “exported” in section 1 of the Value-Added Tax Act No. 89 of 1991 (GN 2761 of 13 November 1998)” (“the Export Scheme”) there are a number of procedural requirements that need to be met in order for VAT to be zero rated. As such, unless the sale agreement between the Seller and the foreign purchaser properly caters for compliance with these requirements the Seller could run the risk of incurring liability for VAT on the sale without effective recourse against the Purchaser. In light of the above this article will briefly canvas two VAT related issues in relation to the sale of a vessel to a foreign purchaser: 1) the requirements that need to be met in order for a foreign purchaser to claim a refund from the Vat Refund Administrator (“VRA”) in the event that VAT on the sale of a vessel is charged at the standard rate; and 2) the requirements that need to be met in order for VAT on the sale of a vessel to a foreign purchaser to be zero rated.



Paragraph 1.2.1 of the Export Scheme states that tax at the standard rate must be charged by the RSA vendor on movable goods supplied to a qualifying purchaser. As such the default position is that when selling a vessel to a foreign purchaser VAT at the standard rate must be charged on the purchase price.

A qualifying purchaser for the purposes of the Export Scheme includes:

a) A non-resident – meaning a person who is a non-RSA passport holder, who was not in RSA at the time of the sale / supply, who is a permanent resident of an export country and who has such     goods exported on his behalf by a “cartage contractor” via a qualifying port. A cartage contractor is a person who is registered as a vendor in terms of the Act, with transport being the main activity, and who has been engaged by the qualifying purchaser to transport the moveable property to him at an address in the export country. A cartage contractor includes couriers and freight forwarders;

b)  A foreign enterprise – is an enterprise or business carried on continuously in an export country in the course or furtherance of which goods and services are supplied to any other person for    consideration.

c)  A tourist – is a non-RSA passport holder travelling to South Africa on non-resident travel documents;

d)  A foreign diplomat – a refund will only be considered to a foreign diplomat where a diplomat who was stationed in South Africa is departing from SA permanently;The procedure to be followed in order for the qualifying purchaser to obtain a tax refund will be dependent on who exports the goods and which one of the designated commercial ports is used to exit RSA.

The only obligation on the Seller in this regard is to supply the purchaser with a valid tax invoice evidencing the sale of the vessel. The purchaser will then have a right to claim a refund of the VAT charged on the purchase price within 90 days from the date of the tax invoice.

The procedure to be followed in order for the qualifying purchaser to obtain a tax refund will be dependent on who exports the goods and which one of the designated commercial ports is used to exit RSA.

  1. In the event that the vessel is exported by the purchaser himself via one of the designated ports listed in paragraph 1.4.1 of the Export Scheme, that being Cape Town, Durban, East London, Port Elizabeth or Richards Bay , the procedure as set out in paragraphs 1.3.1 and 1.3.2 of the Export Scheme will need to be followed in order for the Purchaser to obtain a refund. This basically entails the qualifying purchaser declaring the vessel to the RSA Customs and Excise Official and presenting himself personally to the VRA together with the vessel and the valid tax invoice evidencing the sale of the vessel. If the authority is satisfied that the vessel corresponds with the description of the vessel in the invoice a VAT 255 will be presented to the qualifying purchaser for signature and the refund will be authorised;
  2.  If the vessel is exported by the qualifying purchaser himself via one of the designated ports listed in paragraph 1.4.3 that being, Mossel Bay or Saldanha, the purchaser will need to declare the vessel to the relevant Customs and Excise official and submit a letter to the VRA requesting a refund. In support of the said letter the qualifying purchaser will need to submit the documentation listed in paragraph of the Export Scheme (excluding an invoice from the Cartage contractor) which includes a copy of the tax invoice, a copy of qualifying purchaser’s passport or trading licence and proof that the qualifying purchaser declared the movable goods for customs purposes in the export country.
  3.  If the vessel is exported via the qualifying purchasers cartage contractor via any of designated commercial ports listed in paragraph 1.4.1. of the Export Scheme the same procedure as set out in point 2 above must be followed however no tax refund will be paid where:

a)  The moveable goods were exported more than 90 days from the date of the tax invoice;

b)   The moveable goods were exported via a port other than the designated ports listed in paragraph 1.4.1 of the Export Scheme; or

c)   The request for a refund together with all the documentation is received by the VRA later than 3 months after the date of export.

Where the requirements as set out above have not been met the refund claim will be invalid. If all the requirements are met at the time of departure the refund shall be paid immediately by the VRA.

As such, from the foreign purchaser’s perspective it is imperative that if VAT is to be charged on the sale, the foreign purchaser should ensure that the sale agreement makes provision for obtaining the necessary documentation from the Seller within 3 months from the date the vessel is exported. Furthermore, the purchaser will also need to ensure that the vessel is exported within 90 days from the date of the tax invoice and exported from a designated port.



Paragraph 2.1 of the Export Scheme states the following:

“Where the RSA vendor supplies the movable goods to a qualifying purchaser and the RSA vendor ensures that the movable goods are delivered (irrespective of the contractual conditions of delivery) to any of the harbours or airports listed in paragraph 1.4 from where the movable goods are to be exported by the qualifying purchaser, the RSA vendor can decide to zero rate the supply. The decision to supply at the zero rate is entirely subject to the RSA vendor’s choice”

As such the Seller may at its discretion elect to zero rate the VAT on the sale of a vessel to a foreign purchaser. However, there are a number of requirements that will need to be met in order for VAT to be zero rated;

a)  Firstly the vessel must be exported by a qualifying purchaser i.e. either a non-RSA passport holder utilizing the services of a cartage carrier to export the goods; a tourist travelling on non-resident travel documents; a foreign enterprise or a foreign diplomat;

b)  The vessel will need to be exported via one of the harbours listed in paragraph 1.4. of the Export Scheme i.e. Cape Town, Durban, East London, Port Elizabeth, Richards Bay, Saldanha or Mossel Bay;

e)  Most importantly, the Seller must ensure that the zero rate is not applied in respect of the sale of a second hand vessel if a notional input tax credit was claimed by the Seller or any other person connected to the Seller when the vessel was acquired by the Seller. A notional input tax credit is basically the tax deduction that a vendor can claim on the purchase of second hand goods from a non-VAT vendor. As such if the Seller originally purchased the vessel second hand and claimed a notional input tax credit, the sale of the vessel to the foreign purchaser may not be zero rated;

f)  The purchaser must furthermore retain and carefully preserve for a period of 5 years the following:

  1. A copy of the zero rated tax invoice;
  2. A copy of the qualifying purchaser’s passport or trading licence;
  3. A copy of the qualifying purchaser’s order or the contract between the Seller and the Purchaser;
  4. Proof of payment for the moveable goods by the qualifying purchaser;
  5. In the event that the documentation referred to above is not obtained by the Seller by the end of the tax period which ends after the expiry of a period of 2 months calculated from the date of the relevant tax invoice, the supply will be deemed to be at the standard rate.

In light of the above, it is evident that it cannot simply be taken for granted that the sale of a vessel to a foreign purchaser will be zero rated. The default position is that VAT will be charged at the standard rate and the Seller may at its discretion elect to zero rate the VAT subject to compliance with certain requirements. In the event that the Seller should elect to zero rate the VAT on the sale of a vessel to a foreign purchaser it is imperative that the sale agreement makes provision for the following: a) that the vessel is exported via a port listed in paragraph 1.4. of the Export Scheme; b) that the purchaser warrants that it is a qualifying purchaser for the purposes of the Export Scheme; and c) the Purchaser supplies the Seller with a copy of the purchasers passport or trading licence within 60 days of the date of the invoice. Furthermore, in order to further protect the Seller it may be prudent for the sale agreement to make provision for payment of a deposit by the Purchaser into the Seller’s attorneys trust account to cover the VAT payable by the Seller should the Commissioner of Inland Revenue (“the Commissioner”) decide that VAT at the standard rate is in fact applicable.

It would also be prudent for the Seller to have the contractual right to nominate the clearing agent who deals with the export formalities. In this way the seller can maintain a level of control over the export process and have easy access to the required documents evidencing export of the vessel.