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South African Carbon Tax Introduced On June 1

Wednesday, June 5, 2019

On May 26, 2019, South African President Cyril Ramaphosa signed into law the Carbon Tax Act No 15 of 2019, which came into effect on June 1, 2019, as announced by the Minister of Finance in the 2019 Budget.

The Government's statement said that the Carbon Tax Act was gazetted on May 23, 2019, and will initially only apply to "scope 1 emitters," or direct GHG emissions, in the first phase, which runs from June 1, 2019, to December 31, 2022. The second phase will begin in 2023 and last until 2030.

The carbon tax provides tax-free emission allowances ranging from 60 percent to 95 percent during the first phase. This includes a basic tax-free allowance of 60 percent for all activities, a 10 percent process and fugitive emissions allowance, a maximum 10 percent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to five percent for companies that reduce the emissions intensity of their activities, a five percent carbon budget allowance for complying with the reporting requirements and a maximum 10 percent allowance for trade exposed sectors.

This will result in a carbon tax rate ranging from ZAR6 (USD0.41) to ZAR48 per tonne of CO2 equivalent emitted. This relatively low rate is intended to provide significant emitters time to transition their operations to cleaner technologies, the statement said.

According to the Government, a review of the impact of the tax will be conducted before the second phase, after at least three years of implementation of the tax, and will take into account the progress made to reduce GHG emissions in line with South Africa's international commitments.

The 2019 Customs and Excise Amendment Act and Memorandum on the objects of the 2019 Customs and Excise Amendment Bill were also published on May 23, 2019. This legislation contains provisions related to the administrative arrangements for the collection of carbon tax revenues by the South African Revenue Service.

The Final Response Document on the 2018 Carbon Tax Bill and the Explanatory Memorandum to the 2018 Carbon Tax Bill have been published on the National Treasury website.