Green Economy Journal Issue 39

ECONOMY
Are you Ready?
A Checklist Approach to
Carbon Tax Submissions
BY Lodewijk Nell, EcoMetrix Africa
Businesses and government organisations, across a wide range of sectors beyond heavy
industry, are well-advised to prepare now for the first-ever carbon tax submission deadline
on 31 July 2020 – just weeks away.
The carbon tax submission process is complex and intricate, and
a step-by-step checklist approach is recommended to ensure
all the requirements are met in full and on time. To simplify
the process, our carbon professionals use these questions to assist
businesses in monitoring and assessing their progress to successfully
meeting the tax deadline, while also minimising tax exposure – now
and in the future.
1. Certain your business is not liable?
Verify if your business activities are liable by checking against the tax-free
thresholds in Schedule 1 of the Act, bearing in mind that a limited number
of relatively small equipment combined can easily result in exceeding a
threshold. For example, three 1MW back-up generators with 30% electrical
efficiency together count for a combined thermal capacity of the 10MW
equal to the common threshold for fuel combustion activities.
Taxable activities include fuel combustion in power and manufacturing
plants, as well as transport by rail, domestic aviation and shipping. Road
transport and moving equipment are excluded. Process emissions and
fugitive emissions from activities such as waste treatment or chemical
processes, have their separate thresholds and must also be included.
2. Registered or licenced?
Only license or register as a Customs and Excise Manufacturing
Warehouse including the relevant facilities when emission generating
activities exceed the thresholds.
3. Consumption and activity data captured correctly?
The common basis of your tax assessment is the Greenhouse Gas (GHG)
emissions reported to the Department of Environment, Forestry and
Fisheries (DEFF) on 31 March.
Consumption and activity data for every emissions facility must be
captured, with checks and balances for data accuracy and completeness,
to avoid harsh penalties. Record-keeping requirements include archiving
all data, reports, algorithms, procedures, submissions and technical
references used to estimate emissions for at least five years.
A monitoring and reporting system to manage consumption,
production data and related emissions are instrumental for
record-keeping compliance, while also providing useful technical
performance information.
4. Data correctly aggregated, converted and submitted?
The consumption and activity data must be aggregated and converted per
facility into GHG emissions data as per technical guidelines. Applying the
most beneficial emission factors and calorific values allowed can reduce
your exposure significantly. This GHG emission data must be submitted
to the DEFF in the prescribed format by 31 March each year. While you
register online, report submissions still need to be done by email.
5. Is the Carbon Tax liability correctly calculated and optimised?
Well-informed and positioned taxpayers can reduce their effective tax
rate by a maximum of 90-95% and thereby reduce the effective tax rate
to 6-12 R/tCO 2.
In addition to the fixed tax-free allowances which can reduce taxable
volumes up to 70-75%, there are also flexible allowances depending the
company’s performance, such as a trade exposure allowance up to 10%;
a performance allowance up to 5%, and offsetting through Carbon Tax
Offset (CTOs), allowed for 5-10% of the gross volume of emissions.
The first batches of carbon credits are in the process of being traded
for future use and procedures to convert international carbon credits
into local CTOs are pending. The price range currently expected by
traders is R70.00 - R90.00 per tonne CO 2e.
6. SARS carbon tax forms completed and submitted with payment?
Carbon tax submissions to SARS is due on 31 July of the year following
the tax period, along with payment of the calculated carbon tax levy to
SARS by 31 July.
7. Ongoing monitoring and management of GHG emissions in place?
Ongoing monitoring and management of GHG emissions and the resulting
tax liability are crucial to avoid tax surprises and last-minute deadlines,
while also revealing reduction and mitigation opportunities and providing
additional value in terms of general performance management.
It also allows strategic planning for the long-term. The South African
energy sector will drastically reform over the next decade. The current
Phase 1 (2019 – 2022) is only the start of the carbon tax journey. After
Phase 1, allowances may be strongly reduced and the headline rate may
be substantially adjusted upward. If over time, the carbon tax indeed
would be followed up by a carbon budgets system, the anticipated flat
rate is 600 R/t when exceeding your budget.
It is important, however, to realise that the carbon tax forms part of
South Africa’s international commitments in respect of the fight against
climate change. South Africa is a carbon-intensive country, ranking no.
16 in the world (WRI, 2017). Carbon tax is an incentive to proactively
change business-as-usual to play our part in the global solution by
managing and reducing emissions to sustainable levels.
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