Carbon Tax Bill: deliberations

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Finance Standing Committee

05 December 2018
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee met with National Treasury to deliberate on the Carbon Tax Bill. Eskom and EcoMetrix Africa gave inputs. The Committee would vote on the Bill during the first week of its sitting next year.

National Treasury said it had met with some stakeholders following Committee discussions the previous day. A lot of the issues raised were not new but Treasury would continue engaging. Comments were made about the taxation of open burning of waste and incineration in respect of combustion- related emissions. Treasury clarified and explained that the omission owed to measurement and verification challenges. However, Treasury was committed to developing relevant methodologies throughout the first phase of the tax. BUSA and Eskom gave submissions on the tax base and proposed the deletion of clause 4(2). Treasury’s view was that there could be no tax legislation without defining the tax base explicitly. Treasury was open to discussions on trade exposure allowances and a note would be put out in January to determine the premiums.

The highlights of the discussions were as follows:

Clause 6: Calculation of amount of tax payable

EcoMetrix Africa commented on clause 6(1). The organisation recommended that there be a correction of the first part of the formula to calculate the amount of tax payable by a taxpayer in respect of a tax period. It was suggested that a different discount factor be used for the total emissions, represented by ‘E’. Treasury, in response, said in terms of diesel and petrol emissions, duty at source would be applied through the fuel tax regime. This was meant to simplify tax administration because tax on both would be applied through the fuel tax regime and the formula as it stood did away with the probability of having petrol and diesel being taxed twice.

Clause 13: Offset allowance

Eskom proposed that must be amended to may as utilising carbon offsets was not obligatory. The must would pose difficulties because saying Eskom must utilise carbon offsets was to suggest that the entity must have invested in 20 million tonnes of alternative CO2 emissions reduction. However, these projects take time to develop and require board approvals and would be subject to carbon offset regulations. Eskom might find itself in a position where it could not implement that must. National Treasury, in response, said the policy position was the clause should be left as it was as stakeholders had not motivated sufficiently why they would want to change must to may. To the extent that there were concerns, there would be further engagements but for now it rather be left as it is.

The Chairperson said when Parliament resumes sitting in early February; the printed version of the Bill must be out. However, the Committee could still make further changes on the printed version depending on what emerges between now and then. If there were any changes that would affect the Money Bills Act, the decision on the way forward would be taken by the parliamentary legal advisor and this might subsequently delay the vote on the Carbon Tax Bill by a week.

Meeting report

The Chairperson welcomed everyone to the deliberations on the Carbon Tax Bill. The Bill would be processed informally hence further technical changes could still be made at this stage; but certainly no policy changes. The Committee would vote on the Bill during the first week of its sitting next year. He added the Committee would not have an exhaustive account as Members had gone through the earlier versions of the Bill prior.

Ms Sharlin Hemraj, Director & Senior Economist, National Treasury, said Treasury had met with some stakeholders following Committee discussions the previous day. A lot of the issues raised were not new but Treasury would continue engaging.
Comments were made about the taxation of open burning of waste and incineration in respect of combustion- related emissions. Treasury clarified and explained that the omission owed to measurement and verification challenges. However, Treasury was committed to developing relevant methodologies throughout the first phase of the tax. BUSA and Eskom gave submissions on the tax base and proposed the deletion of clause 4(2). Treasury’s view was that there could be no tax legislation without defining the tax base explicitly. Treasury was open to discussions on trade exposure allowances and a note would be put out in January to determine the premiums.

Carbon Tax Bill: clause-by-clause
The Chairperson took the Committee through the Bill clause-by-clause and asked Members and stakeholders present to flag areas for further discussions. Given this was the last sitting, Treasury must ensure the amendments it wanted inserted were recorded and minuted by Committee staff. The policy issues flagged by the DA thus far would be put in the minority section of the Committee report on the Bill. When Parliament resumes sitting early February, the printed version of the Bill must be out. However, the Committee could still make further changes on the printed version depending on what emerges between now and then. If there were any changes that would affect the Money Bills Act, the decision on the way forward would be taken by the parliamentary legal advisor and this might subsequently delay the vote on the Carbon Tax Bill by a week. 

Clause 6: Calculation of amount of tax payable
Mr Lodewijk Nell, Partner, EcoMetrix Africa, commented on clause 6(1). He recommended that there be a correction in the first part of the formula to calculate the amount of tax payable by a taxpayer in respect of a tax period. He suggested that a different discount factor be used for the total emissions, represented by ‘E’. This was quite a technical element that was difficult to explain. He however noted that diesel and petrol were treated differently in the two parts of the equation.

Ms Hemraj said in terms of diesel and petrol emissions, duty at source would be applied through the fuel tax regime. This was meant to simplify tax administration because tax on both would be applied through the fuel tax regime and the formula as it stood did away with the probability of having petrol and diesel being taxed twice.

Clause 13: Offset allowance
Clause 13 (1) Subject to subsection (2), a taxpayer must reduce the amount in respect of the carbon tax for which the taxpayer is liable in respect of a tax period by utilising carbon offsets as prescribed by the Minister

Eskom proposed that must be amended to may as utilising carbon offsets was not obligatory. The must would pose difficulties because saying Eskom must utilise carbon offsets was to suggest that the entity must have invested in 20 million tonnes of alternative CO2 emissions reduction. However, these projects take time to develop and require board approvals and would be subject to carbon offset regulations. Eskom might find itself in a position where it could not implement that must.

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, said the policy position was the clause should be left as it was as stakeholders had not motivated sufficiently why they would want to change it to may. To the extent that there were concerns, there would be further engagements but for now it rather be left as it is.

Schedule 2
Ms Hemraj noted a typographical error on Schedule 2. Section 2A4 should be on the next column (basic tax-free allowance for process emissions) and the value should be amended to 70%.

The Chairperson took the Committee through the rest of the Bill and there were no further comments from Members and stakeholders. He asked what would be done with the Customs and Excise Amendment Bill. How was it going to be processed?

Mr Momoniat said it would be tabled with the Rates Bills and the main budget next year.

The Chairperson suggested that there be a situation whereby the Minister of Finance writes a letter to the Office of the Speaker in terms of the Rules and have the Customs and Excise Amendment Bill tabled now so that the Committee could vote on it on the first day of its sitting next year. He thanked everyone for their cooperation and added stakeholders should not weep too much as the Carbon Tax Bill would not completely decimate industries. This was a sedate bill by global standards. He wished everyone well.

The meeting was adjourned. 
 

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