The 2024 draft Taxation Laws Amendment Bill (“TLAB”) has recently been released for public comment. Commentary is due by close of business on 31 August 2024. The draft TLAB proposes the following changes from a Carbon Tax and Tax Incentives point of view:
Carbon Tax
- Changes to Schedule 1
National Treasury proposes changes to Schedule 1 of the Carbon Tax Act to use country-specific calorific values and emission factors for the following fuels:
- Aviation gasoline;
- Diesel;
- Jet kerosene;
- Liquefied Petroleum Gas (LPG);
- Paraffin;
- Petrol; and
- Residual fuel oil/heavy fuel oil.
For the fuels above, National Treasury has also removed the calorific values at the lower and upper confidence intervals, leaving only one calorific value for use.
In addition to the above, acetylene, biodiesel, biogasoline, methane rich gas, refuse derived fuels, sawdust and tyres are proposed to be added to the schedule as separate fuels.
Finally, some fugitive emission factors are proposed to be added whilst others are proposed to change in Schedule 1, particularly for coal mining and oil production.
Although the intention of the above changes is to align the Carbon Tax Act with the Department of Forestry, Fisheries and Environment’s Methodological Guidelines for the Quantification of Greenhouse Gas (GHG) Emissions, it is important that you understand the impact these changes will have on your carbon tax liability. Should any of the calorific values or emissions factors overstate your Carbon Tax liability, we would encourage effected tax payers to respond to the draft TLAB and/or to engage with National Treasury. This is particularly important if any of the calorific values or emission factors over-estimate your actual emissions.
The proposed amendments will take effect from 1 January 2024. As such, the updated Schedule 1 will need to be applied when submitting the 2024’s calendar carbon tax accounts in July 2025.
- Carbon offset regulations
There is a proposed change to the carbon offset regulations. Currently, carbon offsets from renewable energy projects that are over 15MW are not eligible under the South African carbon tax, unless it can be demonstrated that the cost is higher than R1.09/kWh. The proposed change will see this increase to 30MW. As such, you only need to demonstrate the R1.09/kWh condition for projects over 30MW in order for them to generate carbon offsets that qualify under the South African carbon tax.
- Renewable Energy Premium Deduction
Under the Carbon Tax Act, electricity producers like Eskom can receive a deduction for buying renewable energy. As Eskom splits into three companies (generation, transmission, and distribution), its renewable energy agreements will move to the National Transmission Company of South Africa (NTCSA), a new subsidiary.
However, the proposed amendment to the Carbon Tax Act means that Eskom’s generation division, the carbon taxpaying entity, will still be able to make use of the renewable energy premium from the renewable energy agreements it transfers to NTCSA.
The proposed amendments will take effect from 1 January 2024.
Tax Incentives
- Employment Tax Incentive (ETI)
In the past three years, the Government revised the ETI Act to address misuse through aggressive tax schemes, where training institutions falsely claimed incentives for students classified as employees but who didn’t receive actual wages, as fees were deducted instead. The Government asserts that employers should bear training costs and that creating fake jobs to exploit the ETI undermines its purpose. With high youth unemployment limiting young South Africans’ opportunities for gaining skills and experience, the ETI’s main goal is to encourage employers to hire young job seekers, providing them with a fair wage and key work experience for future employability.
As a solution, a modification to the definition of “monthly remuneration” is proposed which ensures that when calculating an employee’s remuneration, only the cash amount is to be considered after any deductions. Any non-cash payments are to be disregarded. Section 5 of the ETI Act is proposed to be updated to include a new penalty – if an employer wrongfully claims the tax incentive for any disregarded amounts, they must pay a penalty equal to the full amount of the incentive received.
This change is proposed to take effect from 1 March 2025 and will apply to all assessments from that date onwards.
- Incentive for Electric Vehicle Manufacturing
A new incentive under Section 12V of the Income Tax Act (ITA) is proposed to boost investment in making electric and hydrogen-powered vehicles locally. This incentive will allow manufacturers of electric and hydrogen-powered vehicles to deduct 150% of the cost of new and unused buildings, machinery, plant, implements, utensils and articles.
It is important to note that in order to ensure that there is no double deduction, taxpayers who qualify for the section 12V deduction will not be allowed to claim deductions under section 12C, section 13, and section 13quat of the ITA for assets brought into use during the period of the incentive.
The proposed incentive will come into effect on 1 March 2026 and applies in respect of assets brought into use on or after that date and before 1 March 2036.
- Learnership Tax Incentive
The proposed amendment to the Learnership Tax Incentive seeks to extend the programme by another three years, to 1 April 2027, in line with the Minister’s 2024 Budget announcement.
Please contact Catalyst Solutions if you would like to discuss any of the above and to possibly make comments in response to the draft TLAB published before the deadline.
Leave a Reply