South Africa’s National Treasury is still aiming to institute a carbon tax on January 1, 2015, but chief director for economic and tax analysis Cecil Morden reports that government will only move ahead should it feel that the tax is ready for implementation.
Confronted at a National Business Initiative (NBI) workshop on Tuesday by a barrage of questions relating to what was described as insufficient detail in the latest Carbon Tax Policy Paper, released in May, Morden said that more clarity would be provided in draft legislation.
This draft legislation, which will also be published for public comment, should be published by the end of 2013 or in early 2014 and will take account of comments garnered from stakeholders. “So there is quite a long process still to go.”
A deadline of August 2 has been set for the receipt of public comments on the policy paper, which proposes a rate of R120/t of carbon dioxide equivalent, increasing at 10% a year during the first phase, from 2015 to 2019.
The legislation would offer implementation specifics, including how emissions should be measured and verified across various sectors, what the tax-free thresholds would be for each sector and the extent of possible offsets.
Morden acknowledged that there might still be gaps, but encouraged stakeholders to highlight these in their written responses and to make proposals on how these could be filled.
“If we are not ready, we are not going to implement something that is not workable,” he told a diverse gathering of business people, representing mining and manufacturing enterprises, as well as professional and financial services companies.
Morden was unwilling, however, to entertain any suggestion that the carbon tax was nothing more than a revenue-generation exercise, nor arguments that placing a price on carbon was not a priority in the context for South Africa’s other socioeconomic and environmental challenges.
He said that if the aim was to raise new revenue, it could be achieved through increases in other corporate, personal or consumer tax rates. “We don’t have to have a carbon tax to raise revenue.”
Instead, the gradual introduction of a carbon tax was viewed as part of a broader package of interventions to reduce South Africa’s greenhouse-gas (GHG) emissions.
The National Treasury would not, however, entertain “hard” earmarking for the revenue accumulated, but would consider other recycling mechanisms, including “soft” earmarks through the Budget, reducing other taxes and levies and the introduction of new incentive schemes.
Modelling exercises had indicated that the impact on poor households and the competitiveness of certain sectors and companies could be mitigated.
However, further modelling would be conducted over the coming months with the support of the World Bank. The research is being conducted under the aegis of the Partnership for Market Readiness and is expected to be published during 2014.
Business, however, remains wary of the proposed tax, with calls having already been made for the carbon tax to form part of the broader tax system review being undertaken by Judge Dennis Davis on behalf of the National Treasury.
There is particular concern over the possible implication for South Africa’s already steeply rising power prices, as well as for growth and jobs. Questions are also being asked about whether there is any real advantage in being an early mover when so few other countries are planning to adopt carbon-tax regimes or implement emission-trading schemes.
In addition, despite being relatively carbon intensive, South Africa’s emissions account for only about 1.5% of global GHG emissions, which means that its reductions will have little bearing on climate change.
NBI climate change and water programme manager Steve Nicholls said there was still widespread confusion within business about the possible impact of the tax.
In addition, little discussion had been entertained on the nature of the economic transformation being sought, as well as what levels of investment and skills would be needed to facilitate a transition to a lower-carbon economy.
He urged business and government to engage on the suite of policy and strategy options that could be used to achieve a transformed economy, including the role that a carbon tax could play in facilitating such a transition.