Detailed scrutiny and careful analysis around Carbon Tax regulations is needed to apply for allowances, some of which were only laid out in detail last month.

This was the message of a high-level webinar hosted on 9 July 2020 by experts from business consultants Cova Advisory, which has kept close tabs on the Carbon Tax ever since it was first mooted.

Said Cova Director Tumelo Chipfupa: “We act as a bridge between government and business, and aim to help companies to fully understand the complexities of the Carbon Tax, and how they can reduce their payments.

“Globally, there are 30 Carbon Taxes, designed to put pressure on firms to curb their pollution and to embrace greener technologies.  Our message is that there are allowances in South Africa which can reduce the burden of the tax, and hence, we held our webinar on how to reduce your carbon tax liability.”

Cova Director Duane Newman supported this, and stressed the need for firms to adopt a structured approach.

“Detailed regulations covering a cluster of Carbon Tax allowances were unveiled on the 19th of June 2020. This was a year after the tax was implemented, and there had been considerable uncertainty,” he said.

“Companies have just a few months left to apply for allowances relating to their Carbon Tax liabilities for the 2019 calendar year,” he said. “Company executives must ask themselves whether they are liable to pay this tax, and work out the scale of this. You must assess your carbon footprint and the Carbon Tax rate, and this enables you to calculate your gross liability.

“Then they must ask if it is worth taking the detailed steps needed to claim the allowances. If the liability is tiny, there may be no point. 10% of nothing is nothing. If your liability is significantly high, however, there could be a really worthwhile return on your efforts.”

The new allowances which were gazetted by the Treasury last month include one related to trade exposure – to prevent South African companies which pay a Carbon Tax from being disadvantaged against foreign competitors which do not.

Cova Advisory’s Manager Zelda Burchell suggested that allowances can be a big number. “The allowances can be significant. There is a lot of detailed analysis and calculation needed to establish your trade exposure, and then to work out the allowance you can claim.”

“However, uncertainties remain. Understanding the way your business should be classified, and whether you are working in more than one sector, is all important. Don’t underestimate the importance of getting this right.

“The audit process is not clear at all. It would help if government rules and requirements were made clearer.”

Then, there is a performance benchmark allowance, and Newman said this can be complex, and there is still a lack of clarity on some details.

“This looks at how you are performing in terms of your emissions. You can secure an allowance of up to 5% if you are performing better than the benchmarks which were developed for each sector,” he suggested.

As with the Trade Exposure Regulations, the measurement and verification requirements of the performance benchmarks also aren’t clearly defined. It is not unusual for there to be uncertainties in new regulations, and executives need to understand how the new Carbon Tax regulations fit into the wider legislative environment.

Cova Advisory says companies must also consider another opportunity – the carbon offset allowance. This applies where a company is involved in a project to cut emissions, and which has been registered. However, the establishment of a registry is still awaited.

Newman outlined a further mechanism for reducing Carbon Tax liability: the renewable energy premium. He said: “You can reduce your carbon tax liability if you are using renewable energy sources. Details have been published, but the government needs to rectify the calculation on this in the Act.”

The detailed discussion on all these issues can be accessed on the Cova Advisory webinar. Click here to watch the webinar

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