Business groups have called for an extension to the implementation of the government’s carbon tax regime to take account of the sluggish economy, the enormous costs involved in the transition to net zero, and the need for energy security.
The Energy Council of SA, Minerals Council SA, Business Leadership SA, Business Unity SA, the SA Petroleum Industry Association and the Energy Intensive Users Group made the suggested changes to the Taxation Laws Amendment Bill in a letter to Joe Maswanganyi, the chair of parliament’s finance committee, which will hold public hearings on the bill on Wednesday.
The groups’ views have also been shared with the Treasury.
The Treasury has proposed increases in the carbon tax rate for the 2023 to 2025 tax periods by a minimum of $1, increasing gradually to $20 in 2026 and at least to $30 per tonne of carbon dioxide equivalent in 2030.
The business organisations welcomed the extension of phase 1 and recognised the need to increase the rate of the carbon tax to ensure that SA remains protected against border tax adjustments and can attract financing to enable the just transition to net zero.
But they argue that the economy cannot accommodate the steepness of the carbon tax rate increase in the proposed deadlines. They propose that the annual increases continue to be based on the consumer price index plus two percentage points until at least 2030 to allow for the review and alignment of different policies.
They also propose that a higher carbon price should be considered only after 2035.
Unaffordable
“We are supportive of carbon pricing, including the carbon tax and the development of tools and mechanisms that promote a just transition,” they said, adding, “Business cannot afford the proposed tax rates and simultaneously mobilise the capital needed to mitigate greenhouse gas emissions and grow or invest in new low-carbon products and services.
“The timing of the $20 by 2026 and $30 by 2030 carbon prices and the potential removal of the tax-free allowances will result in very high costs within a short time frame for business to absorb within a developing country context, particularly given the limitation and costly nature of mitigation opportunities pre-2030,” they added.
“Our members are firmly committed to reducing carbon emissions and hence believe that the carbon tax should be implemented at a pace and rate aligned to a developing economy that takes into account the challenges in SA, including low economic growth, energy security and high unemployment.”
The business groups also want the current enacted allowances to be retained until 2030 while other supporting policies and measures are introduced.
“We are concerned that the 2022 draft bill does not retain the allowances to mitigate the impact of the rapidly increasing carbon tax proposals.
“To date, these allowances have been instrumental in assisting business sectors requiring support, such as the mining, petrochemical, steel, cement and other hard-to-abate sectors, from detrimental financial impacts. There is therefore a need for greater policy certainty around the retention of allowances,” they said.
“While we welcome the extension of the energy efficiency incentive, we propose that allowances are expanded and retained and where a phase-out is planned that this be clearly articulated.”
The groups called for support measures and/or incentives, as is the case in many countries.
“Foreign governments have committed to assist taxpayers in transitioning to greener technologies by providing various incentives or forms of financial aid, which is currently not being made available in the Taxation Laws Amendment Bill.
“Carbon prices are high in regions like the EU, Canada and a few others. However, they are ameliorated by various allowances,” they said.
The groups have proposed that a study be undertaken on the financial impact of a carbon tax pass-through from electricity generators and other industries that are not able to pass through a carbon tax to customers.
The statement notes the extension for electricity generators to continue including the environmental levy as part of their carbon tax determinations.
It says the proposed end date of December 31 2025 “poses a significant financial risk to our members who rely heavily on electricity and energy-intensive users across various sectors”.
A pass-through for the carbon tax has already been applied for in the Eskom electricity price increase application for the period of the 2022/2023 to 2024/2025 financial years.
Electricity
Subject to approval, the total projected financial impact, the business organisations say, is more than R24bn from January 2023 to March 2025, resulting in well more than 3% directly attributable to carbon tax increases for financial years 2023/2024 and 2024/2025.
That would place a huge burden on electricity consumers, they said.
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