Industry Desperate for Certainty on Carbon Tax

Johannesburg 20th February

Leading energy consultancy Cova Advisory has warned that there is a desperate need for certainty over South Africa’s planned Carbon Tax. The warning came in the run-up to this week’s Budget, when Finance Minister Pravin Gordhan is widely expected to give an update on plans for the new tax.

“On the basis of what has been said to date, there is a strong probability that the new tax will come into effect from Jan 2018,” said Cova Advisory co-founder Duane Newman. “However, there is a lot of uncertainty, with some commentators suggesting there may be another delay in implementation.”

The Carbon Tax is primarily an environmental measure, designed to curb harmful emissions by providing a “stick” for companies to lower their impact on the environment. To meet the new requirements, companies will have to monitor their carbon footprint, and to provide regular updates on measures to reduce their emissions.

“It is vital that we have policy certainty and we know the exact timing of this tax. Is it on or off? We are just not sure,” said Newman.

“We welcome the extensive consultation that there has been on this. 2016 was a year of consultation on the tax itself, on offsets, on economic modelling.

“We must now see how the Bill will proceed. As well as the need for certainty about the implementation dates, the tax needs to be budgeted for. How much revenue is expected? And where is it earmarked for? What support will the money raised provide to companies which are reducing their carbon footprint?”

Cova Advisory also advises companies on government tax and grant incentives for investment. Newman said a number of issues await clarity, and he is hopeful the Budget will provide the answers.

“There is a big drive to boost support for Black Industrialists. We expect the implementation of this support, and expect the budget allocation to be accelerating in the next year,” he said.

“There is a need for more public disclosure of the grants which are being paid to recipients, as government needs to account for its spending, and we need more clarity on which projects are considered worthy of support.

“The 12I industrial tax incentives are gazetted and the information is given out, and I feel it should be the same with the Black Industrialist programme.”

He also called for certainty on future of the Manufacturing Competitiveness Enhancement Programme (MCEP), which was closed in October 2015.

“This closure means there is a gap in the incentive landscape,” warned Newman. “There is no support now for mid-sized manufacturers, including black manufacturers, with a capital investment of less than R30m. I recommend that the Trade and Industry Department (dti) re-launch a simpler version of MCEP, or introduce a successor programme, and we need to know that dti Minister Rob Davies is being backed by the National Treasury with the necessary funding. Manufacturing is a key sector and needs support to regain its rightful place in SA”

“We also need increased disclosure on the amounts already paid out under MCEP. How much of the allocated budget of over R5bn has been actually been claimed and paid out to applicants?

“I am also hoping for some news on the 12I tax incentive. The existing budget of R20bn is close to being fully allocated. The application window closes in December for new application. We hope government does announce a replacement programme - or an extension of 12I - before its expiry.

“We are aware of significant new investment in the billions of rand to create jobs and growth in South Africa - which will need support from 12I if it is to proceed. Some South African divisions of multi-national companies are competing against other global locations, and S12I does make a difference.”