National Treasury held a stakeholder consultation process on 19 February 2020 to discuss the draft Performance Benchmark and Trade Exposure Regulations that were published for comment. It is vital that these regulations are finalised so companies with a carbon tax liability can finalise the allowances it can claim and to ultimately determine the tax payment that is due on 30 July 2020. Final Regulations are expected to be published by the end of March 2020. Main issues to highlight are:
* Not all industries will be included in performance benchmark regulations
* Concept of border carbon adjustments was raised to replace trade exposure allowance in future ie new environmental/carbon duty on imported goods
* Verification will be needed if you want to claim actual trade exposure.
Performance Benchmark Regulations:
* Benchmarks are calculated based on both scope 1 (direct) and scope 2 (energy indirect) emissions.
* Criteria for determining benchmarks is included in the 2014 PMR report: Emissions intensity benchmarks for the South African carbon tax Technical support study
* The methodology for determining benchmarks will be gazetted.
* In order to verify the emissions intensity per company, National Treasury requires production data to be submitted. This was a contentious issue and business is concerned about confidentiality. Business is pushing a self-assessment approach.
* All benchmarks submitted to National Treasury were included in the Regulations except for lime production, which requires further consultation.
* The coal mining benchmark will be revised to take into account open cast and underground mining.
* Benchmarks submitted to the Department of Environment, Forestry and Fisheries do not qualify for the Carbon Tax performance benchmark allowance.
* National Treasury is accepting new performance benchmarks for submission into next year's Regulations.
* Benchmarks will most likely be reviewed every 5 years.
Trade Exposure Regulations:
* This allowance was included as an interim mechanism until the policy around border carbon adjustments is finalised. So we can expect new duties to be imposed on imported goods. Big news.
* National Treasury will publish the calculations behind the trade exposure percentages included in Annexure A of the Regulations.
* The version of the SIC codes used will be specified, as there are various versions.
* Verification will be required if using the alternative method for calculating trade exposure allowance.
* There may be an earlier review of this allowance ie before start of phase 2 in 2023. There was unhappiness by business at this proposal.
* When using the alternative method, the 30% threshold above which a company qualifies for the full 10% allowance may increase up to 70%, based on the South African Reserve Bank data.
* A detailed mapping of the IPCC codes with the SIC codes in Annexure A of the Regulations will be completed.
Cova Advisory