2022 Draft Tax bills: public hearings

Meeting report

The Chairperson explained that the agenda was very long as many stakeholders were going to be contributing their inputs on the drafts of the Taxation Laws Amendment Bill (TLAB) Bill and the Tax Administration Laws Amendment Bill (TALAB).

Beer Association of South Africa (BASA) submission
Ms Patricia Pillay, BASA CEO, said the alcohol industry had a significant impact on the South African economy as it created jobs, supported industries including marketers, lawyers, canners, bottlers and artists. Beer industry workers were more productive than average industry workers in South Africa. There were 249 000 jobs associated with beer-related economic activities. The industry contributed R71 billion in gross value add (GVA) to South Africa’s Gross Domestic Product (GDP). BASA welcomed the 2022 Budget but was disappointed by the excise tax increase of 4.5% for wine, 5.5% for beer and 6.5% for spirits. This disappointment stemmed from the fact that beer was the lowest in alcohol by volume (ABV). It was difficult to understand the rationale for imposing a high tax on an industry that had a low ABV. BASA proposed that beer and other alcoholic goods that had lower ABV had to be taxed accordingly compared to products with higher ABV. The excise duties period of 30 to 60 days under Excisable Alcohol Products also had to be applied uniformly on all goods.

BASA mentioned the impact the COVID-19 pandemic particularly had on South Africa’s craft brewing industry. People had lost their jobs and this had an impact on society in general as these people had dependants. In the industry’s three year recovery period, no relief had been provided by government. Consequently, the craft beer industry suffered immense loss which saw 60% of its producers on the brink of closure and 30% having closed down.

British American Tobacco South Africa (BATSA) submission
Mr Dane Mouyis, Senior Manager: Fiscal Affairs, BATSA, said the vaping market was new and had “more unknowns than knowns”. The industry had a large number of submissions in the public participation process. Therefore, there were many questions about its market and the impact of the potential excise tax on the industry. BATSA also recommended that excise needed to be collected from all actors equally to ensure fair competition. The Committee had to consider that the market for vaping products was very small. It constituted 0.5% of the entire volume of nicotine products market in South Africa. There were large numbers of retailers selling vaping products in the country but there was an over-proportion demand of retailers creating their own liquids which are widely known as the “do it yourself industry”. In this particular trade, retailers could convert 10 litres of nicotine liquid into 1000 litres of e-liquids for vaping. The excise tax had to cover this segment of the industry. BATSA pointed out that there were different complex product categories driven by fragmentation, differing products and multiple actors. The total consumption of vaping products was less than 250 million per annum. However, a robust excise framework was needed capture this and most importantly to collect excise from all actors in the industry.

BATSA said that the excise framework had to recognise product complexities and market fragmentations. It pointed out the three main product types in the industry. These were the disposable, pods and the liquids. The disposable and pods fell under the closed system whilst the liquids were in the open system which is where the “do it yourself” industry was located. The majority of these products came from overseas, thus, the excise framework had to cover the open system. BATSA recommended that to ensure an effective excise system, a registration system had to be introduced. The millilitre (ml) marking had to be put on the packaging of the products. This was going to assist the South African Revenue Service (SARS) in the administration of the products as the excise was going to be per ml. It recommended a track and trace system that had a unique identity code per individual product from day one. It suggested that to avoid fiscal evasion, a broad tax net had to be created. However, it was important to ensure that the excise was not too high. For example, Portugal’s high excise tax drove people into illicit trade. BATSA proposed the implementation date be extended to 1 January 2024 to create space for public consultation.

BATSA said that there was a need for a sensible approach to maximise revenue collection. If the excise framework was established, an appropriate rate was important. Analysis based on National Treasury’s findings was done and it was concluded that a rate of between 70 and 46 cents per ml was going to be appropriate. The proposal was that the first two ml covered the flat rate while anything above the first two ml carried the rate per ml. Finally, findings from research on international excise rates by Oxford Economics Africa commissioned by BATSA suggested that a rate of R1.45 per ml was an upper limit in the case of South African excise tax. However, when considering the implications of excise duties on product prices and affordability, an excise tax closer to R0.70 per ml was more appropriate.

Vapour Products Association of South Africa VPASA submission
Ms Asanda Gcoyi, Executive Director, VPASA, described the rationale for the tax on vaping products as problematic. VPASA opposed Treasury’s assertion that vaping products potentially undermined global efforts to control tobacco consumption. This was not true considering that electronic nicotine and non-nicotine systems had been proven, through extensive research, to be less harmful than combustible tobacco. For this reason, vaping products had to be part of the comprehensive agenda to control tobacco consumption rather than to be classified as part of the problem. VPASA explained that the global adult tobacco survey revealed that the highest percentage of vaping in South Africa was between the ages of “15 and 24” and that it constituted only 3.1%. This was a very low percentage and did not reflect a youth vaping crisis. The survey failed to provide a clear picture of the underage vaping group or the frequency of underage vaping between the ages of 15 and 18. Whether they were experimenting with vaping or were regular, and how many had quit smoking because of vaping is not clear in the report. VPASA cautioned against measures that were going to deter even adult smokers from taking up vaping. The proposed legislation on tobacco control which included Electronic Nicotine Delivery Systems (ENDS) was therefore the appropriate legal framework to draft vaping regulation and not excise.

VPASA recommended that more empirical research had to be conducted to ascertain if ENDS use initiated individuals into tobacco smoking. This was going to help avoid solving a problem that possibly did not exist because not enough information was provided to support the claims. VPASA was confident that smokers used it to quit, rather than start smoking. The purpose of the excise tax was also not clear on its projected impact on vaping products. Treasury had to conduct extensive research to arrive at a scientific and balanced view of what ENDS presented to public health. After this, it had to solidly anchor its tax proposal on an empirical understanding of the vaping sector in South Africa. This was because the proposed excise tax was not going to be effective if Treasury did not demonstrate adequately how the proposed tax was going to benefit the public. There was fear of the possible unintended outcomes of the excise tax. For example, the proposed tax was going to make the products expensive. It is possible that this was going to give rise to illicit trade and self mixing of ingredients which was going to have horrendous results on the public.

The proposed excise duty potentially had a destructive economic impact on the vaping industry. According to the Oxford Economics Africa report on the economic impact of ENDS product taxation in South Africa, the resulting tax-driven price increases would increase the average price of the products by up to 138%. This would cause e-liquid consumption to decline by 36% and sales in the vaping industry to fall by 22%. In addition, the decline in vaping products sales could trigger a negative multiplier effect of an estimated 1500 jobs, loss of R360 million of the vaping industry's contribution to GDP and a significant reduction in tax contribution by the vaping industry in South Africa. It was therefore important for government to conduct a socio-economic impact assessment on the industry before imposing the tax. The South African Bureau of Standards (SABS) had to devise standards for testing nicotine products. Until these recommendations were put in place, VPASA urged the Committee to defer the proposed tax to a later stage. However, if the Committee deemed the tax was necessary, VPASA recommended a tax that was significantly lower than the one levied on tobacco heated products considering that ENDS were less harmful than cigarettes and tobacco heated products.

Association for Savings and Investment South Africa (ASISA) submission
Ms Liezel Coetzee, ASISA representative and Sanlam Head of Long-Term Tax, listed the principle that ASISA and its members saw as important – that the tax base had to be protected and the tax contributions from industry stable. It was also important to ensure that small insurance providers had sufficient cash to pay the tax. It proposed that a longer phasing-in period would reduce volatility in tax collection for the fiscus. The payments needed to align with the cash flows of insurance to ensure the industry’s sustainability. To ensure the integrity of the information, the proposed adjustments to Section 29A in the tax treatment of long- term insurance companies had to be fully disclosed for financial statement purposes and subject to external audit verification.

ASISA proposed a minimum 10 year phasing-in period because the short six year period suggested by Treasury posed a severe liquidity and solvency risk to the industry. This was because the economic climate in South Africa made it difficult for service providers to keep up with the additional cash flow imposed by the tax. Besides having sufficient cash to pay the tax arising on transition, insurers had to ensure that their assets covered their policy liabilities. This was because transition amounts could result in net surpluses or deficits in the insurance industry. A longer phase-in period enabled a more sustainable tax cash flow from the industry. ASISA also emphasised that there was a need to align the phasing-in period and contract duration.

ASISA members suggested reverting to the tried and tested phasing-in mechanisms which adjusted policyholder liabilities. The proposed phasing-in mechanism by ASISA provided greater alignment between tax and accounting. It reduced the compliance burden over the phasing-in period. This mechanism mitigated the shortcomings of the proposed draft legislation. This alternative mechanism, however, demanded technical corrections as provided in the submission. These technical changes also required members to further engage with Treasury.

South African Institute of Chartered Accountants (SAICA) submission
Dr Sharon Smulders, SAICA Tax Advocacy Project Director, said SAICA was concerned that the carbon tax rate increases were proposed in US Dollars. The South African Rand was very unstable, thus pegging the carbon tax rate against the US Dollar was problematic. Treasury had to provide clarity for the reasons for this.

The proposed changes to the controlling body, that is, the replacement of the Independent Regulatory Board for Auditors (IRBA) by SAICA for non-audit complaints against a registered auditor or registered candidate auditor, to SAICA as an accredited professional body was not going to be as swift as presented by SARS. There were procedures that needed to be done. For instance, even though members were going to be transferred from IRBA to SAICA, it did not mean that they automatically registered as tax practitioners with SAICA. They had to go through the whole registration process and were subject to paying a fee. There were new requirements such as Continuous Professional Development (CPD) and CPD verification as well as audits, tax compliance verification and criminal checks.

SAICA suggested that the system had to consider doing away with the statutory and legislative recognised controlling bodies (RCBs) since the Legal Practice Council (LPC) was now the only body remaining. It proposed some technical changes to the system. The first was the contribution to tax capital. Treasury’s proposed changes had limitations that potentially could affect normal share buybacks and preference shares. The recommendation was to ensure that those transactions could still be continued. The wording of that needed to be refined. It recommended an ordering rule for assessing losses. In terms of rulings, SAICA suggested that Treasury had to make the effective date the date of the ruling.

SAICA also welcomed Section 11D R&D Incentive in the Income Tax Act. This was a step in the right direction as governments in other parts of the world like the USA were heavily involved in funding innovation by private entities like Tesla, Apple and Google. There were concerns with the wording presented in the SARS proposal to revoke third party access to tax compliance if an individual was questioned by SARS due to fraud, misrepresentation or non disclosure. The use of the word “questioned” was liable to abuse as it was used under SARS discretion.

SAICA noted that it had made submissions to Treasury but some of them were not considered. These included the 'associated enterprise' definition which had been postponed twice. There was still no feedback from SARS. The other concern was the deductions for a home office which was inequitable. A person who owned a home could not claim the interest on a bond whilst a person who rented a house could claim tax deduction. Treasury had to rectify this.

Business Unity South Africa (BUSA) submission
Mr Cas Coovadia, BUSA CEO, and Mr Happy Khambule, BUSA Manager: Environment, Climate and Energy, said the proposed changes to the Carbon Tax came at a crucial time in South Africa. For that reason business welcomed the extension of Phase 1 and recognised the need to increase the rate of the standalone carbon tax to ensure that South Africa was protected against border tax adjustments and could attract financing to enable the just transition. The incentives were important to assist and support industry in its decarbonisation efforts because a carbon tax could not be a standalone mechanism. There was emphasis that South Africa needed to compete globally in order to attract investment. Like others, BUSA was not in support of pegging the rate on the US Dollar and urged Treasury to reinstate a rand-based rate.

Business felt the strain of the current carbon tax liabilities and unfavourable conditions. Thus, a variation upwards was going to have far reaching implications for a more comprehensive set of business sectors and society in terms of employment. It also mentioned that business could not afford the proposed tax rates and simultaneously mobilise the capital needed to transition to low carbon operations. The carbon tax was too high and too fast for business to absorb within a developing country like South Africa. There was also a need for a more detailed analysis of viable mitigation and socio-economic implications to decide precisely the right time and headline price.

BUSA said business was concerned that the Draft 2022 Bill did not indicate the retention of the allowances. Treasury wanted to follow international developments where carbon pricing systems implemented abroad had been alleviated through government support. Allowances included free allocations, indirect compensation, subsidies, ring fencing of carbon tax revenue and funding for innovation, technology and research.

There were concerns about the timing of the carbon tax. BUSA said since South Africa was fairly new in its transition journey, a sharp upward trajectory of the proposed tax rate would place it at a competitive disadvantage especially against sectors participating in international markets. South African-based business activities were likely to lose market share in export markets. Possible results included unemployment. Thus an accelerated shutdown without the development and maturity of new industrial activity to absorb jobs and contribute economically could result in shocks to an already fragile economy. It was therefore important that the carbon tax rate increases were timed appropriately to align with mitigation potential, national circumstances, growth of new strategic sectors and the just transition.

BUSA said South Africa needed to create a space for industry to not only transition to low-carbon energy but to help facilitate the transition of suppliers, workers, and skills to the new dispensation. This involved reskilling, managing the change of the current geographical distribution of employees and their families, and creating new employment opportunities whilst diversifying local economies and building resilience. Also formulating the carbon tax rate in US Dollars could result in uncertainties and instability for South African taxpayers. Not enough detail was provided to motivate why Treasury changed the rate from the South African Rand to the US Dollar.

For an effective carbon tax, BUSA proposed a bottom up analysis of different sectors to inform different carbon tax levels. It recommended a suite of policies supporting the carbon tax to effectively decarbonise and grow new low-carbon sectors for a just and equitable transition. For phase 2, it recommended an increase in the carbon tax rate together with allowances.

Banking Association of South Africa submission
Ms Jeanne Stegmann, Banking Association representative, said the Banking Association requested an extension for the implementation of the collateral arrangements dispensation (CD) legislation which was due on 1 January 2023. The request was for a further year to allow Treasury and SARS to engage industry. There were limitations with the way in which the 2021 CD was drafted as there was a need to ensure that collateral could be reused to promote market liquidity. The 2021 Act did not achieve this because it unwound prior collateral compliance arrangements. It limited reuse to a narrow permissible list. The reuse of collateral outside the list was going to render all prior collateral arrangements noncompliant which in effect reversed the dispensation available to prior collateral arrangements in a chain of collateral arrangements.

The Banking Association recommended that the effective date for implementation be postponed to 1 January 2024 for further consultation about the reuse of collateral. Another matter was that non-compliant reuses resulted in tax and did not have to affect prior collateral arrangements in the same collateral chain. Other points of inquiry included perceived abuse on how this could have been addressed and considering redrafting the 2021 legislation as a proviso as opposed to exclusion and removing the list of permissible reuse.

Price Waterhouse Coopers (PWC) submission
Mr Kyle Mandy, PWC Tax Policy Leader, pointed out that the Contributed Tax Capital (CTC) was a contentious issue in the sector for a very long time. Treasury was concerned that there was a mismatched distribution of dividends among shareholders which possibly gave room for ‘manipulation’. The 2021 amendment tried to cover this loophole but brought along unintended consequences on share buybacks and redemptions. The proposed amendment suggested that if there was another distribution within 91 days it had to be included in the CTC. Whilst this solution tried to address the problem, there was still residual potential anomalies and exposures that arose from these types of transactions. For these reasons, PWC supported the 2021 rule which addressed the problem but suggested that it had to provide a specific exclusion from the rule for share buybacks.

PWC expressed concern on why the carbon tax rate was pegged against the US Dollar. It was concerned by the steepness of the rates which could potentially result in significant shocks in 2026 and 2030. There were also uncertainties on the future of various allowances. In drafting the carbon tax, PWC recommended revenue recycling. The carbon tax draft did not demonstrate this.

South African Breweries (SAB) submission
Ms Fatsani Banda, SAB Economist and Excise Specialist, said SAB welcomed the excise duty on alcohol. It pointed out that the excise adjustment on beer and spirits was above inflation while the one for wine was within the inflation line. Although Treasury motivated that wine’s contribution to the economy was the rationale for this preference, SAB called for these inconsistencies to be addressed. It pointed out that the volatility in the approach in the annual excise adjustment created uncertainty for SAB's business and affected planning and investment. It proposed that tax proposals be tabled during the Medium Term Budget Policy Statement (MTBPS) and not with the Budget because the former played a crucial role in setting the tone for the fiscal framework.

SAB recommended that an ABV or content-based system be applied to the full alcohol category. The existing system only applied to beer and spirits. This would reduce red tape and increased excise administration costs. This was part of the President’s commitment to create a conducive environment for business and investment to take place. SAB recommended the change of the excise adjustment approach to a fixed excise rate in line with forecast inflation for three years in the medium term budget.

Discussion
Ms P Abraham (ANC) thanked the stakeholders for their submissions. It was apparent that some stakeholders felt they were not treated equally in terms of tax expectations. She asked if the various stakeholders had a similar impact on the country’s economy. Had the stakeholders already had the opportunity to make alternative propositions to Treasury? She asked if the ten year phase-in period that ASISA was asking from Treasury was not too long. If it could try lessen this closer to what Treasury was proposing, what would be the time line?

She requested VPASA to elaborate on the danger associated with vapour smoking. Although it was alleged that this form of smoking was less hazardous because it did not carry nicotine, it did pose other forms of danger. VAPSA should comment on this. She was concerned it considered an 18 year old to be old enough to make wise and informed decisions. She was confused because initially VAPSA mentioned 15 years old. A video had been circulating on social media of a child between the age of five and eight years old vaping. She asked if VAPSA could share some of its monitoring tools.

The Chairperson thanked the stakeholders for their submissions. BUSA had raised a critical question about Treasury starting to denominate the price of carbon in South Africa into US dollars. Treasury had to explain this because it was difficult to understand why a sovereign country like South Africa had to refer to a foreign currency to base its rate.

Mr I Morolong (ANC) asked for clarity on the regulation of the production of electronic nicotine liquid. The submissions suggested that electronic nicotine and non-nicotine products were harm reduced. However, the Committee was aware that retailers were producing their own electronic nicotine liquid. How was this being regulated to guarantee safety of the product?

Ms M Mabiletsa (ANC) echoed the concern and asked if something could be done to improve the education of society about the consumption of alcohol and tobacco. There was a growing concern in the country about the underage consumption of alcohol, tobacco and recently vapour products. Perhaps improved education about these substances could help the young make more informed decisions before consuming harmful products.

Stakeholder responses
Ms Coetzee, ASISA, replied that the six year pricing period was too short especially considering the contract length of its business which spanned up to 50 years. There was a need to balance the phasing-in period and the period of contract duration. She emphasised that she was not asking for 50 years but for a period longer than six years. A short pricing period was going to negatively impact the industry and possibly lead to a surplus or deficit. A much longer period, therefore, not only protected the industry but the fiscus as well.

Ms Gcoyi replied that VPASA did not condone the use of vapour products by underage people. Instead it disputed Treasury’s rationale for imposing the excise tax on the ground that South Africa was facing a possible crisis on the usage of vaping products by young people. VAPSA regarded access to products by individuals under the age of 18 as illegal. Therefore, in the absence of a regulation, VPASA had decided to self-regulate.

Among the tools to do so is the youth access prevention campaign which runs annually. During this programme VPASA ensured that its members were informed about the illegality of selling vaping products to underage individuals. There were age verification gates on websites that assessed the age of credit card holders purchasing these products. There were also delivery mechanisms were providers had the right to refuse delivering a product if the person receiving the package was under the age of 18. In the shops, there was a clear instruction that products were not to be sold to individuals under the age of 18. Vaping industry members had raised concerns about the packaging of the products. It was observed that the use of cartoons and sweets in the packaging of the products appealed to young people and as a solution, VPASA members pledged to do away with that. VPASA also joined the Advertising Regulatory Board in an endeavour to avoid instances where the package messaging seemed to be directed to the underage population.

Another step that the vaping industry had taken was working with SABS in developing product standards for the industry. This initiative sought to combat the illegal production of vaping products. These individuals had to be reported to the SABS. Another important tool that VPASA used was mystery shopping. Every two months a mystery shopper randomly visited retail shops to observe if guidelines were being followed.

Ms Gcoyi replied that the child in the video that Ms Mabiletsa referred to was not using a vaping device. In the risk continuum there were tobacco cigarettes and bubbly bubblies which had combustion, and then there were tobacco heated products that did not have combustion. At the bottom of the spectrum were vaping products. For better clarity on which products were safer, one needed to compare vaping products with tobacco. People smoked because they were addicted to nicotine but they could die from tobacco combustion. Vaping products eliminated this combustion. VPASA was therefore driving the concept of harm reduction as an important public policy agenda in South Africa.

Mr Khambule replied that BUSA could not explain why Treasury linked the pricing with the US Dollar. The reasons Treasury gave in its recent engagement with BUSA were not compelling. The carbon tax applied only to companies operating within South Africa and not necessarily linked to any other jurisdictions in the world. In explaining how pegging prices in a foreign currency could be avoided, it was a matter of confidence not only that South African business was trying to undertake particular change, but confidence that South African business could plan ahead and make necessary investments in line with what was affordable. As other stakeholders had highlighted, the US Dollar was very unstable. This made South African business very unpredictable which directly affected confidence and certainty. The technologies needed for South Africa to move towards low carbon emissions were going to come from outside South Africa. To plan around these investments, there was a need for price predictability. When these technologies were successfully procured, it was possible to deploy them with funds that could be ring fenced and facilitated. Having a link to the US Dollar did not give South Africa the kind of certainty it needed. There were other considerations about foreign reserves and exchange controls. However, there was not enough bandwidth for that whilst the carbon tax was in the process of being applied. He recommended that for that for now it was prudent to stay within the band and having it in rand terms which everyone could understand.

Ms Pillay, BASA, replied that the beer industry was open to engaging with Treasury about the uneven tax system. BASA was working at a national level on social responsibility and had partnered with various national departments. Its expenditure with regard to social responsibility was in communities across the country including deep rural areas since this was perceived to be were the problems existed. It was found that people consumed alcohol because they were stressed, depressed or hungry. In some instances it was peer pressure. In response, BASA pushed its low alcohol categories in its campaigns. Given all these efforts and the fact that beer had a low alcohol volume, the industry had to be rewarded and taxed appropriately. If beer was 5%, a 5.5% tax did not make sense especially considering that products with higher volumes of alcohol were taxed 4.5%. The industry was making sure that the product was enjoyed responsibly and was contributing to employment, the economy and the fiscus. For that reason, the playing field had to be levelled.

World Wildlife Fund (WWF) submission
Mr James Reeler, WWF Senior Climate Specialist, said the WWF was aware of the liabilities that were imposed on business in the form of the carbon tax. However, it was important to bear in mind that there was very little time to address global warming. Between 2021 and 2040, it was projected that global warming on the planet would have exceeded the 1.5°C global warming level. Under the increasing carbon emissions, the ocean and land carbon sinks were projected to be less effective at swallowing the accumulation of carbon in the atmosphere. Recent studies projected that in the future society was going to pay USD$184 per tonne of carbon emissions. Society had to be aware of these consequences. WWF suggested that a carbon tax of USD$20 to 30 meant that society was effectively subsidizing emissions to the tune of R2600 per tonne of carbon dioxide in perpetuity. The carbon tax prices stipulated for developing countries like South Africa were significantly lower.

WWF pointed out that current allowances hindered tax efficacy as they removed the incentive to change. For that reason, the basic allowance had to be eliminated. New allowances had to be based on decarbonisation action. It recommended that offsets were allowed for 'hard to abate' sectors like cement and steel.

South African Securities Lending Association (SASLA)
Dr Melissa van der Merwe, SASLA representative, pointed out that the draft amendment by Treasury to address the ‘collateral arrangement’ had its limitations. SASLA was particularly concerned with the limitation on the right of use of collateral under the ‘collateral arrangement’ exemption. It suggested that the limitation on the right of use of collateral had to be a proviso to the definition of ‘collateral arrangement’ instead of it being an exclusion to the definition.

SASOL submission
Mr Handre Rossouw, SASOL Executive Director and Chief Financial Officer, said SASOL was on track to reduce its greenhouse emissions by 30% in 2030. He pointed out that the carbon tax had to be integrated into a broader climate change policy which balanced the people, planet and profit. This was important especially considering the rising unemployment in South Africa. Like other stakeholders, SASOL called for mitigation measures to support the implementation of the carbon tax. SASOL emphasised its important contribution to the economy. It had operations in the USA and Europe where it was also paying carbon taxes. However, the taxes it was paying abroad were significantly lower than the ones imposed by South Africa. This was because of strong mitigation measures that existed abroad.

SASOL had already approved R15-25 billion to decarbonise its business. It also was a major player in investing in future green hydrogen and low carbon growth projects. With that being said, the proposed carbon tax threatened the viability of SASOL’s business. Whilst SASOL was trying to decarbonise its operations and invest in carbon free projects, the carbon tax posed a R20-30 billion tax liability on it. To moderate this, SASOL recommended changing the timing of the tax implementation. This was especially as there were so many uncertainties in the world during this period. For instance, Germany was beginning to burn coal due to the energy crisis in Europe. SASOL called for incentives to support actors in their efforts to decarbonise their operations.

Minerals Council South Africa (MCSA) submission
Ms Stephinah Mudau, MCSA Head: Environment Department, said MCSA was concerned about the impact of pegging the carbon tax rate in US Dollars on mining taxpayers. This concern stemmed from the volatile nature of the South African Rand which made it difficult for mining companies to plan and budget effectively for their tax liabilities. Setting the carbon tax in US Dollars demonstrated the government’s lack of confidence in the South African Rand.

MCSA said mining companies that were part of the Council had already been implementing significant measures to reduce carbon emissions. Therefore, further imposing high tax liabilities on them eroded their efforts. The high carbon tax severely impacted the viability of mining companies particularly those that were energy and carbon intensive. It left them with very little time to implement cost effective measures in their operations. Whilst MCSA supported the alignment of the carbon tax with international standards, it was important to consider South Africa’s unique economic circumstances.

MCSA recommended that Treasury set the carbon tax rate in South African Rands. It also encouraged Treasury to continue levying carbon tax rates on an annual basis with the CPI plus 2% in the first phase. If there were any potential increases in the carbon tax rate, additional measures had to be implemented to support the minerals industry.

Cement and Concrete South Africa (CCSA) submission
Dr Dhiraj Rama, CCSA Industry Development Executive, said the CCSA welcomed the carbon tax and commended Treasury for it. It pointed out that cement production was a very carbon intensive industry due to its usage of limestone. For that reason, it had very limited mitigation measures at its disposal. However, in the past 10 years, the sector had put in place measures to reduce its carbon emissions. CCSA pointed out that it measured favourably internationally in that regard.

CCSA mentioned that its sector faced stringent competition from cheap imports which threatened its viability. The cement industry contributed to regional economic growth as limestone mining sites were located in various corners of the country which created employment. CCSA said the proposed carbon tax was very steep and it was not sustainable based on the variable costs proposed by Treasury. The rates were going to increase ten-fold by 2030. This translated to a 68% increase in the product price by 2030. This was going to have a severe impact on consumers. The sector was faced with the rising carbon tax, increase in electricity and coal prices, greenhouse mitigation costs and the lack of government support through grants and allowances. All these factors had major implications to the viability of the cement industry.

CCSA pleaded with Treasury to consider the hardships that the cement industry was under. It asked to consider the principle of a differentiated approach to allowances for the sector and to facilitate fiscal support for appropriate mitigation action.

Industry Task Team on Climate Change (ITTCC) submission
Dr Andries Gous, ITTCC Co-Vice Chairperson, welcomed the carbon tax and commended government for such an ambitious step. It recommended that the carbon tax had to be carefully implemented, and had to be accompanied by several incentives to ensure that it did not come at the expense of industry that was already in transition.

Whilst it supported the introduction of the tax, ITTCC said the tax was high and too soon for the industry to absorb. This could lead to unintended consequences. For instance, internal modelling by some ITTCC members had shown they would have to shut down some or all of their operations. This left room for cheap imports to replace their services and products. ITTCC suggested a single carbon tax price across all sectors of the economy. It called for more support towards commercial decarbonisation through incentives.

ITTCC recommended an in-depth study to determine the impact and consequences of the carbon tax pass-through from the electricity sector, as well as the impact on sectors that were not able to pass-through carbon tax to their customers. It supported the inclusion of sequestrated activities in the carbon tax formula but proposed that this be extended to all sectors beyond the paper and pulp industries. This allowed multiple sectors and companies who used land and assets within their control also to benefit from this. Like other stakeholders, it proposed that the carbon tax had to be put in South African Rands to eliminate uncertainties that came with the US Dollar.

Chemical and Allied Industries Association (CAIA) submission
Dr Glen Malherbe, CAIA Head of Policy Analysis, said CAIA intention was to assist government in crafting the most effective and least costly policy to reduce greenhouse gas emissions with little negative impact on business sustainability, employment and the GDP. It pointed out that South Africa's greenhouse gas emissions were amongst the highest in the world per capita. The contribution of the chemical industry in these statistics was 1%. For that reason, CAIA suggested that differential pressure had to be applied in enforcing the carbon tax.

CAIA pointed out that there was no single integrated mitigation system. This had potential negative impacts like pressure on business sustainability and investment decisions. Companies that had already been implementing mitigation projects, and those that had a good track record in sustainability, were going to face the tax. Its recommendations were that the carbon tax had to consider principles that were suitable for the South African circumstances. Implementation had to be as flexible as possible to achieve reduced carbon emissions. It encouraged policy to focus on cost mitigation potential analysis and ensuring growth as much as possible. It advocated for the delinking of the tax from the Department of Forestry, Fisheries and the Environment. It also called for the delinking of the tax rate from the US Dollar due to the risk of the weakening rand. A full mitigation system had to be put on the table before any further final policy developments were made. Companies were supposed to be given the opportunity to seek least-cost mitigation methods to obtain the best credit as possible and at the fastest rate. Like most stakeholders, it said the tax trajectory was too steep.

Arcelor Mittal submission
Mr Werner Venter, Arcelor Mittal Chief Technology Officer, said the sector was carbon intensive as the conversion of iron to steel involved a process of burning coal. However, Arcelor Mittal was excited about the coming of new technologies that helped reduce carbon emissions. It had also developed its own roadmap to reduce greenhouse emissions by 2030. Similar to other stakeholders, it said the carbon tax was high. In addition, Treasury was silent on allowances that supported companies during their transition. In other countries in the European Union (EU) and Canada, allowances were provided for long term purposes. However, in South Africa, the government already stipulated that allowances were gradually going to drop as time went on. Unfortunately for companies involved in the iron and steel industry, effective alternative energy sources were far from being found. As a result, there was a need for government to consistently provide allowances beyond the target of 2030. Its sector was facing imports of steel. This, together with the high carbon tax, compromised its competitiveness. The proposed draft was lacking from a support perspective and put a critical sector in the country at risk. It hoped that its concerns would be taken into consideration.

Ms Abraham thanked the stakeholders for their submissions. In the its next engagement with Treasury, the Committee was going to be in a position to represent the stakeholders.

Meeting adjourned.