2019 Budget Speech Observations – Environmental Taxation, Grants and Tax Incentives

20 February 2019

The Minister of Finance, Mr. Tito Mboweni, presented National Treasury’s annual 2019/20 budget earlier this afternoon. The 2019 Budget proposes a series of tax and expenditure measures aimed at narrowing the deficit and stabilising the country’s debt-to-GDP ratio. The most notable of the additional tax measures is the implementation of the Carbon Tax on 1 June 2019.

Carbon Tax – Carbon tax will be implemented on the 1st of June 2019 and will be reviewed after three years. SARS will publish draft rules for consultation by March 2019. In addition to this, final carbon offsets, trade exposure and benchmarking regulations will be published in the near future. 

Tax Exemption for Certified Emissions Reductions (CERs) – Section 12K will be repealed. It currently provides an exemption for the income generated from the sale of CERs.

Section 12L – It was proposed that the energy efficiency tax incentive be extended to 31 December 2022. Government will review the design and administration of this incentive this year to improve its ease of use, effectiveness and economic impact.

Waste – In 2019, National Treasury will publish a draft Environmental Fiscal Reform Policy Paper and Government will investigate a tax on “single-use” plastics (straws, caps, beverage cups and lids, and containers). As such, we can anticipate a tax on paper and packaging in the near future. National Treasury will also review the biodiversity tax incentive and there will be an increasing focus on waste management, with the Waste Bureau being allocated R1.3 billion over the medium term.

Health Promotion Levy (Sugar tax) – The health promotion levy was implemented on 1 April 2018. The levy rate will increase to 2.21 cents per gram in excess of 4 grams of sugar per 100ml from 1 April 2019.

Employment Tax Incentive – In 2018, government extended the employment tax incentive by 10 years. In addition, the eligible income bands will be adjusted upwards to partially cater for inflation and to align with the National Minimum Wage Act.

Urban Development Zone Tax Incentive – The incentive is due to expire on 31 March 2020. Government will review the incentive in 2019 to determine whether it should be extended.

Section 12I Tax Allowance – No new announcement was made on the allowance and no additional budget was allocated over and above the current R20 billion threshold. The DTI is currently engaged in a process to review approved projects in order to free up budget to support additional industrial projects.

Special Economic Zones – Plans were announced to designate an additional special economic zone in Mogwase (North West) to focus on renewable energy and technology, agro-processing, logistics, and mineral beneficiation.

Business Incentives – Government’s spending on industrial business incentives over the next three years will be R19.8 billion of which 48% is allocated to manufacturing development, including R600 million to the clothing and textile competitiveness programme. In addition to this, an amount of R481.6 million is allocated to the Small Enterprise Development Agency to expand the small business incubation programme.

Jobs Fund – Confirmation was received that funds are available to support ongoing projects over the next three years.

Agriculture – The Land Bank will support smallholders, and leverage partnerships with other financial institutions (R3 billion allocated). A blended-finance model, which aims to support emerging black farmers under the Black Producer Commercialisation Programme will receive a further R887 million over the medium term to help them to access finance. Additional funds are allocated for land-reform projects and to assist emerging farmers seeking to acquire land to farm. The comprehensive agricultural support programme grant (“CASP”) has been allocated R5 billion to support newly established and emerging farmers.

With the implementation of the new Carbon Tax, companies have effectively three months to ensure that they have the required processes and systems in place to ensure compliance. As Catalyst, we assist our clients to calculate their carbon tax liability, verify calculations, complete returns and develop strategies to reduce carbon tax liabilities. It will be essential to ensure alignment in the report submitted to the Department of Environmental Affairs under mandatory GHG emissions reporting which is due at the end of March 2019.
Catalyst Solutions continues to partner with our clients and industry bodies to ensure that South African companies can maximise the various grants and tax incentives opportunities on offer. We also advise on environmental policy and the impact that the environmental taxes may have on our clients. Please let us know if you have any questions on this year’s budget or any other grants and tax incentives related matters.

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