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.