Energy efficiency has become an important focus worldwide and green tax is currently a popular topic, particularly in South Africa, with National Treasury hoping to introduce a carbon tax on January 1, 2015, says audit, tax and advisory services firm KPMG.

Although the proposed tax will be a penalty and not an incentive, companies must not ignore the benefits of going green, a KPMG corporate tax manager Gustav van den Berg tells Engineering News.

While there will be substantial cash outflows for businesses if the carbon tax is implemented, the benefits will be a greener and more sustainable approach to manufacturing, mining and the various other industries active in South Africa, he notes.

“This is only the second time a Brics [Brazil, Russia, India, China and South Africa] member is introducing a carbon tax. The South African government considered the economy and what, in its view, would best influence behaviour in terms of going green, with carbon tax seen as a solution,” Van den Berg points out.

He says the tax will bring in a penalty, but that the penalty is balanced by other incentives that will also increase green behaviour. Nevertheless, penalties will ensure that the various industries are compliant with their obligation to reduce their carbon footprint.

Should the tax be effectively administered, Van den Berg says companies will have to comply and reduce their carbon footprint and find greener ways of approaching industrial and other activities.

This will be more costly in the long run, compared with an initial upfront penalisation towards compliance.

Meanwhile, one of the biggest South African tax instruments in the pipeline is the Income Tax Act’s proposed energy efficiency allowance, which grants a company or a taxpayer a notional allowance for reducing its or his/her electricity consumption. Van den Berg says government indicated that it will use the revenue from the carbon tax to fund energy efficiency allowances, specifically this one.

“From an incentive side, there are various benefits related to reducing income tax charges using certain incentives and allowances included in the Income Tax Act, for instance, a general research and development (R&D) allowance, as well as other allowances more specific to green technologies,” he advises.

Green Tax Index
In May, KPMG International released the results of its Green Tax Index, which was launched at the 2013 KPMG Asia Pacific Tax Summit, in Shanghai, at the end of April.

South Africa was listed as the thirteenth most active country, out of 21 major global economies, with regard to using tax as a tool to drive sustainable corporate behaviour and achieve green policy goals.

Earlier this year, KPMG’s sustainability and tax departments conducted a worldwide analysis of the countries that are using green tax instruments to encourage sustainable behaviour and the reduction of carbon footprints.

The tax index included major economies, such as the US, the UK, France, China and Singapore. South Africa was the only major African economy on the index and ranked highest in water efficiency, water recycling and incentives to increase the control of water pollution.

The country ranked third in terms of solid waste, pollution control and ecosystem protec- tions, and fourth in energy efficiency. In terms of carbon emissions and climate change, the country ranked sixth.

KPMG International notes that green tax could have an intrinsic effect on corporate investment decisions – especially for multinational businesses – which could make or break projects depending on whether costs are cut, efficiency is increased, and whether the project is innovation driven and transforms corporate behaviour that will result in greener initiatives and technologies.