Taxation papers released for public comment

23rd May 2014

By: Callie Lombard

  

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The National Treasury recently released two taxation papers in the space of a week for public comment. The first, released on April 29, is the Carbon Offsets Paper and the second, released on May 5, is the Review of the Taxation of Alcoholic Beverages in South Africa. Comment on the two papers is due by June 30.

The Carbon Offsets Paper outlines proposals for a carbon offsets scheme that will enable businesses to lower their carbon tax liability and make investments that will reduce greenhouse-gas (GHG) emissions. The carbon offsets scheme is meant to complement the carbon tax that South Africa plans to introduce from 2016. The proposed design of the carbon tax policy has been outlined in the Carbon Tax Policy Paper: Reducing Greenhouse-Gas Emissions and Facilitating the Transition to a Green Economy that was released for public comment in May 2013. South Africa voluntarily committed at the 2009 United Nations Climate Change Conference, in Copenhagen, to reduce GHG emissions from projected ‘business-as-usual scenarios’ by 34% in 2020 and 42% in 2025.

In 2011, South Africa adopted the national climate change response policy, which comprises a comprehensive package of measures to deal with both mitigation (reducing GHG emissions) and adaptation (ensuring climate change resili- ence through pubic investments). The carbon tax will be one of the key measures to mitigate climate change. The package also contains a set of climate change adaptation measures to ensure resilience to climate-change-related extreme weather events. Finance Minister Pravin Gordhan announced the proposed carbon tax policy package in his Budget speeches in 2012 and 2013. Following subsequent public consultation, he announced revisions to the package in Budget 2014.

The proposed carbon tax policy comprises the following key elements: a basic tax-free threshold of 60% below which the tax will initially not be payable; a Z-factor formula to adjust basic tax-free threshold to reward companies that have taken voluntary actions to reduce their GHG emissions before the introduction of the carbon tax; additional tax-free allowances for sectors with limited potential for emissions reduction, that is, industrial process emissions; an additional graduated relief for trade-exposed and emissions-intensive sectors; carbon offsets that firms can use to reduce their carbon tax liability; and the overall maximum tax-free threshold is limited to 90%.

According to the National Treasury, a carbon offset is a measurable avoidance, reduction or sequestration of carbon dioxide or other GHG emissions. Carbon offsets are sometimes described as project based because they typically involve specific projects or activities that reduce, avoid or sequester emissions. Carbon offsets will enable firms to cost-effectively lower their carbon tax liability. They will also incentivise investment in least-cost mitigation options in the country, driving investment in GHG-mitigation projects that deliver carbon emissions reductions at a cost lower than the carbon tax.

The Review of the Taxation of Alcoholic Beverages in South Africa, which follows the 2010 and 2012 Budget announcements, contains proposals that must be seen as part of a package of measures (financial and nonfinancial) aimed at addressing the negative externalities associated with alcohol and encouraging a more responsible approach to the use of alcohol. Such measures include excise duties on alcoholic beverages, limits on the drinking age, restrictions on liquor trading hours, restrictions on alcohol advertising, education targeted at the youth and other groups at risk (for example, pregnant women), better enforcement of laws and regulations to combat alcohol abuse and illicit trade, and higher penalties for drinking and driving.

The discussion paper covers the following areas: the experience of the current excise duty structure for alcoholic beverages since 2002; recent developments in excise policy formulation, both locally and internationally; alcohol excise tax anomalies; the scope for using the excise duty system to effectively internalise the social external costs arising from alcohol abuse; and policy reform options.

Among the key aspects raised in the paper for consideration in the reform of the excise duty (tax) regime for alcoholic beverages are the recognition of the social costs of alcohol abuse and the need to include such costs in the price of alcohol; the need to keep track of international benchmarks; whether the current approach to target the total consumption tax burdens of wine, clear beer and spirits should be reviewed; whether a uniform tax based on alcohol content rather than by product type (for example, wine, beer, spirits, and so on) should be considered; dealing with anomalies in the cider, alcoholic fruit beverage, and spirits cooler market (sometimes collectively referred to as the ready-to-drink market); the appropriate classification and taxation of mixed and fermented alcoholic beverages; taking account of changes in the structure of the alcoholic beverage market; technological advances in production techniques and product development; and the displacement of some lower- priced products by illegally produced alcohol products.

IDZ Designation and Operator
On May 5, Trade and Industry Minister Dr Rob Davies extended an invitation for public comment, by May 15, on the application for the designation of an industrial development zone at the Dube Tradeport, at La Mercy, KwaZulu-Natal, and for the granting of the operator permit.

Customs and Excise Bills
The South African Revenue Service (Sars) informed on May 5 that the Customs and Excise Amendment Bill, 2013 [B44B-2013] and Customs Control Bill, 2013 [B45B-2013], had been accepted by the National Council of Provinces on March 19. According to Sars, these Bills still have to be assented to by the President before they can become Acts of Parliament. These two Bills, as well as the Customs Duty Bill, 2013 [B43-2013], are to be assented to by the President before they can become Acts of Parliament.

‘Exported’ Vat/Customs and Excise
On May 2, Sars published value-added tax (Vat) export regulations under section 74(1) of the Vat Act, read with paragraph (d) of the definition of ‘exported’ in section 1(1) of the Vat Act. On the same day, Sars published the insertion of Rule 64D.05(4)(e) of the Customs and Excise Act – cartage contractor to be licensed remover of goods in bond. This amendment reads: “(e) the goods are supplied at the zero rate in terms of section 11(1)(a) (ii), read with Part Two, Section B of the regulation as contemplated in paragraph (d) of the definition of ‘exported’ in section 1(1) of the Value-Added Tax Act, 1991 (Act No 89 of 1991).” This amendment is meant to ensure the alignment with Vat export regulations.

Professional Foreign Hunters Vat
On May 5, Sars published a draft interpretation note on the supply of goods and services by professional foreign hunters, which explains the Vat treatment of various supplies to foreign hunters, including hunting services, taxidermy services, the supply of a trophy as well as the subsequent export of the trophy. Comment is due by June 30.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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