In the instalment of this column published on April 17, titled ‘Plastic bag levy – who derives the benefit?’, readers were inadvertently introduced to one of the environmental levies provided for by the Customs and Excise Act, 1964.

An environmental levy is payable in addition to the ordinary customs duty, in respect of imported goods, but is also payable as an excise duty (although it is not called that) on locally manufactured goods. In the olden days, the application of both a customs duty and an excise duty was called a ‘contra duty’.

The general rationale for an environmental levy is to change consumer behaviour. Ultimately, consumer demand determines the desire to manufacture a good and, accordingly, the nature and quantity, besides others, of the good to be manufactured. To influence such desire, a government could temper with the attractiveness of the price of the good by subjecting it to taxation, of which a levy is one form. The reason for subjecting the good to taxation is, generally, twofold: a tax either serves a fiscal purpose (generating revenue for government) or is imposed in order to effect behavioural change. Though the distinction seems to be obvious, it becomes less so when one considers the administration of the tax and the application of the tax proceeds.

Let us consider South Africa’s environmental levies. Do you know how many such levies are imposed within the confines of the Customs and Excise Act, 1964? There are four, of which one – on plastic carrier bags – is familiar to you. The other three apply to electricity, electric filament lamps and carbon dioxide (CO2) emissions from motor vehicles.

For how long do you expect these levies to be implemented? The levy on plastic bags was introduced in June 1, 2004, while those applicable to electricity, electric filament lamps, and CO2 emissions from motor vehicles were introduced on July 1, 2009, November 1, 2009 and September 1, 2010, respectively. It is quite probable that the environmental levy will be extended to include other goods.

The obvious question to ask with regard to the environmental levies is whether they are a fiscal measure or are intended to effect behavioural change. To effect behavioural change, the tax proceeds collected should be ringfenced, which means that the revenue will be allocated for a particular purpose and will not be spent on anything else, otherwise it will be merely a fiscal measure.

As stated in the April 17 instalment of this column, the environmental levy on plastic carrier bags is nothing but a fiscal measure. The environmental levy on electricity applies to electricity generated in South Africa, and there is an intention to consider electricity generation from renewable resources. Given that Eskom, a State-owned power utility, generates in the order of 95% of South Africa’s electricity, most of it from coal, it is improbable that the proceeds from this tax be used to address environmental issues. In addressing its electricity constraints, South Africa is still pursing initiatives to generate electricity from coal. (The environmental levy on electricity, unlike that on other goods, is applicable to locally generated electricity only.)

Electric filament lamps – tungsten halogen and incandescent – are subject to an environmental levy, the intention being to increase the price of the bulbs in order to boost the preference for fluorescent bulbs, which, although more cost effective and durable, are also less price competitive without the tax. An interesting observation, which still needs to be subjected to an official study, is that, owing to the mercury content in electric filament lamps, which is not present in other bulbs, these lamps are more harmful to the environment. It has been said that, when these lamps are disposed of, the mercury in them evaporates and causes air and water pollution. One would have expected that the proceeds from the environmental levy will be used for the disposal and recycling of the lamps. But, alas, it appears this environmental levy is fiscal in nature.

The environmental levy applicable to CO2 emissions from motor vehicles is an interesting one, as it is imposed on new motor vehicles. This raises questions about the rationale behind its imposition. Quite simply, why is it imposed on new motor vehicles and not on older ones? Surely, older motor vehicles are more likely to cause pollution than newer ones. Also, if the intention is to address CO2 emissions from motor vehicles, would it not be better to impose a fuel levy? A fuel levy would apply to all consumers of fuel, thus satisfying the ‘polluter pays’ principle. Thus, the more fuel one uses (older motor vehicles tend to be less fuel effective), the more the user will pay in terms of the fuel levy. In its present form, it is unlikely that this environmental levy will address an externality, as the true externality is not even known. This is but another fiscal measure.

It is evident from this brief assessment that the environmental levies within the confines of the Customs and Excise Act, 1964, are all essentially fiscal in nature. The concern is that the consumer might well consider the imposition of these levies as fair and just, accepting the charge for the internalisation of an external cost. But the proceeds from the levies are not ringfenced, and, as a consequence, not applied to remedy the external cost.

This raises a few obvious questions. Why are the environmental levies necessary, when the proceeds are not ringfenced and the external cost is not remedied? If government is not willing to use the proceeds to remedy a present imposed external cost, then it merely defers the cost to the next generation. If the intended purpose of the environmental levy has not been met or fulfilled, then serious consideration should be given to how this could be rectified, the abolition of the environmental levy or acknowledging that the environmental levy is a fiscal matter and retained as such.

WCO HS 2012 and HS 2017
On May 6, the World Customs Organisation published the correlation tables between the 2012 version and the 2017 version of the Harmonised System (HS). The correlation tables are an essential device for the preparation of new national customs tariffs and a trade statistical classification based on the HS Nomenclature 2017 Edition, and for preparations for possible World Trade Organisation negotiations.