What does carbon tax mean for SA businesses?

At its core, the Carbon Tax Act seeks to make sure that businesses and consumers consider the negative costs of climate change when making future decisions. Here is how it affects your business.

As the climate change crisis continues to gain momentum, governments across the world are fighting the issue through various legislation and policies aimed at stabilising carbon emissions.

In South Africa - the 14th largest greenhouse gas emitter in the world - the Carbon Tax Act of 2019 came into effect on 1 June 2019 in a bid to reduce the country's greenhouse gas emissions.

At its core, the act seeks to make sure that businesses and consumers consider the negative costs of climate change when making future decisions about production, consumption, and investment. This is done by taxing businesses based on how much they contribute to CO2 emissions.

Here is how the act affects your business.

How does the Tax work?

According to the applicable emissions determination methodology in Section 4 of the Carbon Tax Act, the carbon tax is assessed taking into account the carbon dioxide equivalent of GHG emissions coming from fuel combustion, industrial processes, and fugitive emissions.

The tax is imposed on all businesses in the country that operate emissions-generation facilities at a combined installed capacity equal to or above the carbon tax threshold. 

The installed thermal input capacity for combustion operations that produce emissions is limited by Treasury to 10 Megawatt, meaning if you have the capacity to combust 10MW, irrespective of usage or fuel type, your emissions will be subject to a carbon tax.

The Department of Environment, Forestry and Fisheries' (DEFF) approved reporting technique and the mandated formulas outlined in the Carbon Tax Act are used to identify the emissions that are subject to the tax.

Calculating your business’s Carbon Tax

The tax is administered and collected by Sars and the carbon tax rate for the first phase is R120 per tonne of emissions that are comparable to carbon dioxide. Up until 2022, this rate will increase yearly by inflation plus 2%.

Thereafter, it will rise yearly by inflation. To give current emitters time to transition their operations to cleaner technologies through investment in energy efficiency, renewable energy, and other low-carbon measures, significant industry-specific tax-free emission allowances ranging from 60% to 95% will produce a modest net carbon tax rate ranging from R6 to R48 per tonne of carbon dioxide equivalent emissions.

Making your business Carbon Tax compliant

For the purposes of the environmental levy, anyone performing an activity in South Africa that generates greenhouse gas emissions above the threshold must register each of their emissions-generating facilities with SARS as customs and excise manufacturing warehouses.

Every licensee is required to submit an annual Carbon Tax environmental levy account in the month of July of the year after the tax period for each licenced facility under their control. All licensees must register for eFiling because it is the preferred method for submitting and paying Carbon Tax accounts. To submit your account

  • Register on eFiling;
  • Once registered, log on;
  • Click on the Request Declaration button;
  • Insert the warehouse number;
  • Click on continue and the form will be generated.

The tax also includes a number of mechanisms and allowances aimed at reducing its burden. These allowances include an allowance for industrial process emissions, an allowance in respect of fugitive emissions, a trade exposure allowance, a performance allowance and the Carbon budget allowance.

Carbon Accounting solutions

In addition to understanding how the Carbon Tax works, businesses need to start investing in other solutions to help reduce their carbon footprint and aid in the fight to save the planet. One such solution is the carbon accounting solution, Spherics, which was recently acquired by Sage.

By collecting data from a customer's accounting software and correlating transactions to emission parameters to get an initial estimate of their carbon footprint, Spherics software automates the process of estimating emissions.

The software then directs the user to improve this estimate by providing more information to enable more precise calculations. It also enables users to calculate the transactions related to carbon footprint, by applying carbon emission factors to procurement categories (such as delivery, lodging, electricity, and transport). This strategy aligns with the Greenhouse Gas Protocol - the internationally recognised standard for quantifying carbon emissions and provides clients with spend-based analysis help.

To find out more about this online software solution for your business and explore more ways to keep your business in the clear and tax compliant this tax-year end, visit Sage here.

To strengthen your business, find out more about Sage products and services here.