Proposed Carbon and Energy Related Changes to the Income Tax Act and the Carbon Tax Act

The South African National Treasury released the Draft Income Tax Amendment Bill in July 2019. The following proposed carbon-related amendments should be noted –

• Section 12K to be repealed, effective from 1 June 2019. This section allows for the income generated from the sale of carbon credits to be tax exempt. This applied to carbon credits generated from emission reduction projects registered under the Clean Development Mechanism (CDM). This section is proposed to be repealed due to the introduction of the carbon tax.

• Section 12L to be extended from years of assessment ending before 1 January 2020 to year of assessment ending before 1 January 2023. This extension is also proposed because of the introduction of the carbon tax. A portion of the revenue generated from the carbon tax is meant to be earmarked for this tax incentive.

National Treasury also released the Draft Taxation Laws Amendment Bill in July 2019. This Bill includes the following proposed amendments to the Carbon Tax Act –

• An amendment to make it clear that a person is a taxpayer even if the activity it conducts is only equal to the threshold.

• An amendment to provide more detail on the types of municipalities that are potential carbon taxpayers.

• An amendment to make it clear that the tax rate will increase by an amount equal to a percentage equal to the change in CPI. The change in CPI is taken from November of the previous tax period and November of the tax period immediately prior to the previous tax period. The CPI will be sourced from Statistics South Africa.

Please note that the tax rate will still increase by this percentage plus 2% until 31 December 2022. Thereafter, it will increase by this percentage.

• An amendment to make it clear that a taxpayer must determine its emissions in accordance with an emissions determination methodology approved by the Department of Environmental Affairs.

As such, it is important that you obtain approval for your methodology if it is not in 100% compliance with the Technical Guidelines for Monitoring, Reporting and Verification of Greenhouse Gas Emissions by Industry. It is our understanding that these Guidelines are currently being updated.

In addition to the above, it is important to remember that the allowances are activity-specific. As such, the allowance in respect of fugitive emissions is only applicable to fugitive emissions and not to all emissions.

Should you have any queries, please feel free to contact us.