Carbon Tax Bill; Customs and Excise Amendment Bill & PIC Amendment Bill: public hearings

NCOP Finance

12 March 2019
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

A range of stakeholders told the Committee that they opposed the implementation of the Carbon Tax Bill. While they agreed on the need to deal with climate change, they questioned whether the Bill was an appropriate measure.

Representatives of the domestic airlines industry asked for it to be exempted from the tax. They said they were already subjected to international requirements for reducing greenhouse gas emissions. The additional burden of a carbon tax would give an unfair advantage to international airlines which were exempt from the tax, but which still flew between South African centres. .

Cement producers said the additional tax would have a severe effect on their industry, which was already under pressure.

The Committee heard complaints from various quarters, including Sasol and Business Unity SA, that there was no clarity about how the Carbon Tax Bill would be aligned with other measures, such as the carbon budgets system being implemented by the Department of Environmental Affairs.  There was also a lack of clarity about how the Carbon Tax Act would be administered under the Customs and Excise Act.

The Bill was supported by the Congress of South African Trade Unions (COSATU) and the World Wildlife Fund (WWF) South Africa.

The Black First Land First movement dismissed it as an attempt by the government to appease the West.

The Committee also heard submissions on the Public Investment Corporation Amendment Bill, which is aimed at making the PIC more accountable and transparent in its investment activities.

The AmaBhungane Centre for Investigative Journalism said processing of the Bill, which had been crafted by a Parliamentary committee, should be halted. It argued that it would preempt and undermine the work currently being done by a commission of inquiry into the PIC.

COSATU supported the Bill, and urged the Committee to continue its work. It expressed concern about a request by the commission that passage of the Bill should be stopped. It said it would set a dangerous precedent if a body appointed by the executive arm of government were allowed to undermine the work of the legislature. 

Meeting report

The Chairperson said that, in addition to the presentations being made, the Committee had received 11 written submissions.

Carbon Tax Bill submissions

Airlines Association of Southern Africa (AASA)

Mr Chris Zwiegenthal, Chief Executive Officer (CEO): AASA, said the airline industry was committed to the global efforts to reduce greenhouse gas emissions. South Africa, as a member of the International Civil Aviation Organisation (ICAO), had endorsed the Carbon Offset Reduction Scheme for International Aviation (CORSIA).

While AASA supported the goal of reducing carbon dioxide (CO2) emissions, it did not support the imposition of a carbon tax.

Mr Zwiegenthal said the National Treasury had decided that international aviation would not be subjected to carbon taxes in South Africa. This should also apply to domestic aviation for the following reasons:

Domestic airlines operated their services according to international standards. They should not be subjected to two regimes - CORSIA for international operations, and a carbon tax for domestic operations.  Instead, CORSIA could be adapted to the domestic industry. Different regimes would impose extra costs on an already marginal industry.

Domestic Airlines could be at a competitive disadvantage. For example, if an international airline operated a flight from Cape Town to an international destination with a stop-over in Johannesburg, this would be an international flight and not subject to carbon taxes. However, if a South African airline flew from Cape Town to Johannesburg and passengers then connected to an international flight, the domestic flight would incur carbon taxes.

Mr Zwiegenthal said carbon offset schemes, such as CORSIA, were a better method of reducing carbon emissions. A globally accepted scheme like this would do more than a carbon tax in encouraging the aviation industry to reduce emissions.

Association of Cementitious Material Producers (ACMP)

Further opposition to the tax came from the Association of Cementitious Material Producers (ACMP). Its executive director, Dr Dhiraj Rama, said a carbon tax would have a serious impact on an industry which was already in distress due to soaring electricity and transport costs and cheap competition from imported cement.

Local producers would be unable to absorb the costs of a carbon tax and would have to pass it on. Price escalations of 2.5% were expected. Although the proposed carbon tax did provide an allowance for trade exposure, this might not be sufficient to protect local production, leading to lower investment and possible retrenchments.

SASOL

The chemicals and energy company, Sasol, proposed that the promulgation of the carbon tax be postponed in order to align it with the carbon budgets mechanism being implemented by the Department of Environmental Affairs (DEA), which sets emissions thresholds for different companies.

Sasol said the tax would be levied over a very wide base, which included the entire emissions of every company, while the rate per ton was reduced to a level which was insufficient to alter behaviour. Sasol had a very large volume of emissions, where options for reducing them were either more expensive than the tax rate or not feasible technically. Sasol therefore had no choice but to pay the tax. Due to the large tax base, this would place a large financial burden on Sasol, without any impact on the second biggest source of emissions in the country.

Instead, Sasol proposed that companies pay a higher carbon tax rate, but only on emissions above the thresholds set in the DEA’s carbon budgets. The higher tax would serve as a penalty mechanism by making the price of reducing emissions less costly than the tax.

Sasol called for the promulgation of the carbon tax to be postponed in order to align the Customs Control Act, the Customs Duty Act and the Customs and Excise Amendment Act. It said calculating greenhouse tax emissions was not an exact science. The punitive penalty regime under current legislation would expose Sasol to substantial potential penalties for non-compliance, even if it was not intentional.

Sasol’s head of regulatory services, Mr Johan Thyse, told the Committee that Sasol supported a transition to a lower carbon economy, but this had to done in a manner which was not disorderly and which provided policy certainty. 

Black First Land First (BLF)

The Black First Land First (BLF) movement described the carbon tax as an attempt by the South African government to appease the West while benefiting white monopoly capital. Its national spokesperson, Mr Lindsay Maasdorp, said the Bill failed to address the issues of energy sovereignty and the need to industrialise to create jobs. He said the Paris agreement on climate change placed the burden of combating climate change on the developing world, while the West refused to take responsibility for its role in destroying the planet. While the Bill would allow big companies to avoid paying carbon taxes, it would affect poor people through, for example, higher paraffin prices.

Chemical and Allied Industries’ Association

The Chemical and Allied Industries’ Association opposed the tax. Executive Director, Deidre Penfold, said there were potential negative socio-economic impacts, such as the impact on inflation of applying the tax to liquid fuels.

She said the full range of legislation on climate change had not yet been considered. The DEA had not finalised legislation on the carbon budget regime, and it was not clear why two instruments for combating climate change were necessary.

There was a lack of policy certainty about what would happen in the second phase of implementing the carbon tax after 2022. There would be a very different tax regime and there could be a wide range of impacts on the economy and employment.

Ms Penfold said chemical companies had for years voluntarily made investments to reduce greenhouse gas emissions. As a result of this, they could now have a carbon tax liability even though further reductions were not technically feasible.

World Wildlife Fund (WWF)

The environmental organisation, WWF South Africa, said it supported the carbon tax as one tool needed for a just transition to a low-carbon economy. However, its low carbon programme manager, Ms Louise Naude, said the tax rate was too low to be effective. Allowances of up to 95% reduced the tax to a token. She said a strong price signal should be given now, and prices in the future should be high enough to maintain the desired changes.

Organisation Undoing Tax Abuse (OUTA)

The Organisation Undoing Tax Abuse (OUTA) said while it supported the principle of the carbon tax, it should not be implemented in the current economic conditions and it its current form. Its energy portfolio manager, Mr Ronald Chauke, said no baseline data on emissions had been collected and standardised for industries. The administrative costs of the tax had not been quantified and complexities had not been clarified. Diverse economic scenarios had not been thoroughly modelled.

Mr Chauke said the Carbon Tax would increase the cost of doing business and should not be implemented until the economy had achieved economic growth of three to four per cent for three years. A carbon tax on fuel to be implemented in June would be grossly unfair to motorists and consumers.

Business Unity South Africa (BUSA)

Business Unity South Africa (BUSA) told the Committee that they supported setting a carbon price in the economy, but could not support the Carbon Tax Bill in its current form.

Ms Shamini Harrington, of BUSA’S climate change committee, said several critical issues remained outstanding:

The carbon tax had not been aligned with the DEA’s carbon budgeting system.
The National Atmospheric Emission Inventory System had not been finalised. This was required for verifying greenhouse gas emissions..
There had not been consultations about regulations on performance benchmarks and trade exposure.
Carbon offsets regulations had not been finalised.

Ms Harrington said the National Treasury had underestimated the impact of the tax. High electricity prices had just been announced and a carbon tax on top of this and a carbon tax on fuel would result in untenable business costs.

BUSA also criticised the Customs and Excise Amendment Bill, which would provide for the administration of the carbon tax, saying it did not pass the test of regulatory certainty. Reference to greenhouse gas emissions as “goods” created an incorrect impression that they could be measured and audited in the same way as tangible goods. Penalty provisions were severe, and left no room for errors being made by a reasonable taxpayer.

Congress of South African Trade Unions (COSATU)

The Congress of South African Trade Unions (COSATU) said the tax would act to influence industry and consumers. However this should be accompanied by a wide range of other energy, housing and transport measures to ensure a just transition to a low carbon economy. Workers whose jobs were affected would have to be re-skilled.

Public Investment Corporation Amendment Bill.

The Select Committee on Finance also heard submissions on the Bill crafted by the National Assembly’s Standing Committee on Finance.

COSATU

Cosatu said it strongly supported the Bill because of what it termed an explosion of state capture and looting, including at the Public Investment Corporation (PIC).

Mr Matthew Parks, Cosatu’s Parliamentary co-ordinator, said current Act on the PIC was only four and a half pages long, yet it had to protect a R2 trillion fund. There were no accountability and transparency provisions, no depositor mandating requirements, and no investment guidelines.

The new Bill would give workers a say on how their money was spent by requiring that the PIC board include three union representatives. The PIC would be accountable to Parliament and would have to report annually on all listed and unlisted investments and all ministerial directives given to it.

While the Bill required the PIC to heed the mandates of investors, it was also required to pay attention to guidelines about investing in order to build the economy, create jobs and transform society.

Mr Parks said COSATU was concerned about efforts to undermine the Bill and stop the National Council of Provinces (NCOP) from dealing with it after its adoption by the National Assembly. He said there was a covert campaign of resistance to the Bill, which he blamed on people who wished to continue looting the PIC.

Mr Parks also referred to an approach which the commission of inquiry into the PIC had made to Parliament, asking it to halt the passage of the Bill while the commission  completed its work. He said allowing this would set a dangerous precedent. The commission was accountable to the executive and the executive could not undermine the constitutional role of Parliament.

AmaBhugane

The AmaBhungane Centre for Investigative Journalism argued that the NCOP should not consider the Bill before rising on March 28 2019. It said it would be impractical and procedurally irrational to change the PIC Act while a commission of inquiry into the PIC was still under way.

Also, too little time had been given for the public to respond to an invitation to attend the Select Committee hearings.

Legal counsel for AmaBhungane said the commission was required to make recommendations on changing the PIC Act based on its findings. It would be pre-emptive at this stage to finalise amendments which appeared to address allegations made at the inquiry. Amendments should be made on findings, not on allegations. If amendments were passed now, they would in effect be rendering the commission and its findings redundant.

AmaBhungane also called for an amended PIC Act to include a general provision to allow public access to records of investment decisions. It argued that the Promotion of Access to Information Act would not be appropriate for gaining access to such records, because it allowed the PIC to refuse access on certain grounds. AmaBhungane said the Bill in its present form would harm the right of the public to hold the PIC to account.

Association of Black Securities and Investment Professionals (ABSIP)

The Association of Black Securities and Investment Professionals (ABSIP) said PIC board members should be highly independent and act with the utmost integrity. There should be thorough probity assessments of every director. Given that the PIC managed R2 trillion in assets, only highly skilled and appropriately qualified people should be recruited for its investment team. National executive committee member, Mr Asief Mohamed, said the “big pot of easy money” tended to attract deals that might not be sustainable.

Mr Mohamed also called for black empowerment targets to be reset to better reflect the general race and gender demographics of the population.

BLF

The Black First Land First Movement (BLF) accused the PIC of effectively operating as a privately-owned asset management entity. BLF’s deputy president, Zanele Lwana, said the PIC did not address social responsibility commitments on poverty and unemployment arising from historical dispossession under colonialism.

BLF said pension contributions by workers should be abolished, with the state providing the total pensions of workers. The money for this would come from nationalising 100% of the commanding heights of the economy.

Discussion

Mr F Essack (DA, Mpumalanga) described the submissions on the Carbon Tax Bill as thought-provoking. On the calls by Sasol and others for the alignment of different taxes, he asked how they proposed this should be done. On calls for the ring-fencing of funds raised by carbon taxes, he asked how this could be achieved.

Mr M  Monakedi (ANC, Free State) asked whether cement producers totally rejected the Carbon Tax Bill or whether they were objecting only to the timing of its introduction. He put the same question to Sasol, asking whether they would support the Bill’s implementation if the issue of alignment of taxes was resolved.

Mr L Nzimande (ANC, KwaZulu-Natal) asked for clarity on fears by cement producers about the economic impact of a carbon tax.

The Chairperson asked the Airlines Association to elaborate on what they meant by calling for an alignment of taxes.

Responses

Mr Zwiegenthal said the AASA meant that instead of a carbon tax,  emissions-reducing measures in the domestic airline industry should be aligned with the international CORSIA regime. It would be an administrative burden if domestic airlines had to deal with international requirements as well as a local  carbon tax.

For the cement producers, Mr Rama said their concern was not just about the timing of the Bill, but also its content and detail. He referred to a slide which showed a steady decrease in emissions by the industry, and said this showed there were policies in place to deal with greenhouse gases. He asked whether a carbon tax was an appropriate measure when the industry could already demonstrate reductions in emission.

By referring to timing, he also meant that other measures such as a carbon  benchmark system and an emissions inventory system were not yet in place. While there was certainty about the first five years of carbon taxes and allowances, the industry needed to make longer-term projections about investments. Producers required certainty about how the cement sector would operate in future in terms of regulatory obligations.

Mr Nzimande pressed the BLF to explain their opposition to the Carbon Tax Bill and their assertion that it benefited white monopoly capital while placing the tax burden on the poor.

Mr Maasdorp responded that there was no effective carbon tax for mining companies. They were simply being incentivised to participate in carbon reduction by being given big allowances. The poor on the other hand would be directly affected by, for example, the impact of the carbon tax on paraffin prices.

On the issue of aligning taxes, Mr Gilfillan of Sasol said the Bill in its current form did not align the carbon tax with the system of carbon budgeting being implemented by the DEA. Sasol believed this could be achieved by making emissions below the threshold set in carbon budgets exempt from tax, and imposing higher taxes on emissions in excess of the thresholds.

Mr Monakedi asked OUTA about its belief that the carbon tax should not be implemented before the country had achieved steady growth rates. He suggested that not imposing such a tax could be bad for trade, given the insistence by some countries that trading partners had to meet environmental standards.

Mr Chauke replied that OUTA acknowledged the reality of climate change. However, South Africa was a developing country and had to balance its socio-economic imperatives with the need to raise revenue. A carbon tax now was not appropriate. Industries such as mining had already taken steps to reduce emissions.

On the implementation of the carbon tax, Ms Yanga Mputa, of the National Treasury, said there had been discussions with stakeholders for almost 10 years. Various concessions and changes had been made during this process.

On the fact that the rules for administering the tax under the Customs and Excise Act had not yet been published, Ms Mputa said the predicament was that such secondary legislation could not be published before the primary law on the carbon tax and been approved by Parliament. However, it had been agreed that the proposed rules could be published for public comment at the end of March.

Ms Sharlin Hemraj, of National Treasury, said some stakeholders were calling for measures aligning the carbon tax and carbon budgets to be provided in the Carbon Tax Bill.  This could not be done because carbon budgets would be dealt with in the Climate Change Bill, which was still to come before Parliament.

However, October’s Medium Term Budget Policy Statement did announce that the current tax treatment would apply to the extent that emissions reported were equal to the carbon budget determined by the DEA. For emissions above that, a higher tax rate would be applied.

On calls for carbon tax revenues to be ring-fenced for environmental purposes, Ms Hemraj said this could result in over- or under-allocation of funds to government priorities. Instead, revenues would be recycled to neutralise the effect of the tax on electricity prices. Some of the revenue would be recycled to provide tax concessions for energy efficiency. There would soon be a final round of consultations on the carbon offsets allowance of 10% before regulations about its implementation were finalised.

On the Public Investment Corporation Bill, Mr Monakedi asked how the Treasury ensured that PIC board members were fit and proper. He understood the socio-economic concerns raised by BLF, but he was not sure where they stood on the specifics of the Bill.

Ms Lwana said BLF was not unhappy with the provisions requiring transparency and providing for workers to be represented. However, the PIC operated in an environment where business was in the hands of a minority. There was no pro-active effort by the PIC to promote radical economic transformation.

On the fitness of board members, Adv Empie van Schoor, of the Treasury, said the PIC Act required that they should be appointed on the grounds of their knowledge and experience. She said that would apply to all members, including union representatives.

Mr Parks said Cosatu agreed that union representatives should be held to the highest standards.

The Chairperson called on Parliament’s chief  legal adviser, Adv Frank Jenkins, for his views on the discussions.

 Adv Jenkins said the submissions had indicated concern about the way in which the PIC invested funds and the returns on its investments.

On the issue of transparency about investments, he said a balance had to be struck between the openness advocated by AmaBhugane, and unnecessarily influencing the markets.

On proposals that the Bill should lapse while the PIC commission did its work, Adv Jenkins said the Select Committee had been given a mandate to consider and report on the Bill, and could not decide on its own to let the Bill lapse. That would be for the NCOP to decide. The PIC commission was a structure of the executive and would report to the executive. Whether the executive released that report speedily was an open question

In closing the day-long meeting, the Chairperson said the document referring the PIC Bill to the Committee had made it clear that its duty was to report on it to a plenary session of the NCOP. The hearings had made it clear that Parliament should improve its oversight activities. The PIC should appear before it at least twice a year.

The meeting was adjourned.

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