Despite weak growth Treasury will soon publish draft carbon-tax bill

Hopes that tax is off table, given electricity constraints, weak growth, are dashed as finance minister says bill will soon be published for public comment

HOPES that a carbon tax is off the table, given SA’s electricity constraints and weak economic growth, have been dashed.

Finance Minister Nhlanhla Nene said in his medium-term budget policy statement in Parliament this week the Treasury would soon publish a draft carbon-tax bill for public comment.

"The need to take action to address the causes and consequences of climate change is increasingly important," he said.

The bill will provide further opportunity for debate on the detailed design and impact of the proposed tax, Mr Nene said.

Industry players have cautioned that the implementation of a carbon tax in the current economic framework will harm the steel, mining and manufacturing industries.

Duane Newman, head of the South African Institute of Tax Professionals’ tax incentive committee, says SA cannot afford to implement a carbon tax in the short to medium term.

"The burden will be on the manufacturing and mining sectors, which are shrinking and are under serious threats of job losses."

However, there is an argument that if a carbon tax is to be implemented in five years’ time, all new projects would need to build carbon tax into their business cases.

"This could mean that the new project could be much greener than otherwise would have been. I believe this objective can be achieved through a tax incentive or government grant programme."

Mr Newman says there are provisions in the Income Tax Act that allow for an additional tax allowance on large projects, with an energy efficiency requirement and another provision for an energy efficiency additional tax allowance.

"I recommend that these incentives be given a chance to work before a carbon tax is implemented," he said.

Alex Anderson, Sasol’s head of group media relations, says SA should focus on further refining its energy and industrial policy to ensure it increases access to lower-carbon energy sources.

This will allow the country to transition to a lower carbon economy.

"It is our view that without creating access to lower carbon energy alternatives the impact of the carbon tax on emissions will be muted. Instead, it will further increase the cost base of companies and consumers, thereby negatively impacting the country’s competitiveness and consumer inflation."

He says the tax design is likely to divert funds from emissions reductions, as companies will be forced to cut back on capital investment to fund the tax.

Mr Newman, also director of consulting firm Cova Advisory, says it is clear that SA wants to ride "the global green wave" and create new industries.

"These are admirable objectives and we need to support this green transition. What we need to debate, however, is whether a carbon tax is the right policy instrument to achieve it."

Mr Newman says if this is indeed the best policy instrument, then the country needs to be sure of when the best time is to implement it. The green transition needs to be facilitated through a combination of regulatory targets and incentives.

"Once these have been given time to work, then a carbon tax can be implemented so that the penalty or stick is only brought out when the carrot has not worked well enough," Mr Newman says.