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How will the Carbon Tax Bill affect business in South Africa?

President Cyril Ramaphosa signed South Africa’s Carbon Tax Bill into law on 26 May 2019 and many South African businesses are concerned with how it will affect their bottom line. The decision was made in an effort for South Africa to meet the global change agreement negotiated in Paris in 2015. Here’s how the new Carbon Tax Bill will impact business across the country.

South Africa relies heavily on fossil fuels and, as a result, creates the most pollution in Africa and is the 14th largest greenhouse gas emitter in the world. So, regardless of the fact that the country can ill afford this tax right now due to the state of the economy, the president has put the environment first, and perhaps rightly so due to the urgent global climate change crisis we are facing. In a statement, the treasury said, “Climate change represents one of the biggest challenges facing humankind, and the primary objective of the carbon tax is to reduce greenhouse gas emissions in a sustainable, cost-effective and affordable manner.” However, not every South African agrees that the bill is cost effective as it will not only affect businesses but consumers as well. For instance, the bill will also have an impact on the price of petrol and diesel. Petrol has gone up 9c a litre and diesel is up 10c a litre.

In order to thrive in a less carbon-intensive economy, businesses and consumers alike will have to significantly change their behaviour and practices.

Positively, due to the global shift of perspective on climate change, greener companies are viewed more favourably for investment. South Africa finally joins a long list of countries and cities around the world that have similar carbon tax laws.

The first phase of the bill will run until 31 December 2022 and will initially only effect direct emitters in the mining, manufacturing and industrial industries and businesses that emit greenhouse gases such as carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons, and sulphur hexafluoride. The bill will not effect electricity prices initially which will give companies the opportunity to prepare properly for the way they will need to operate in the future. In order to comply with the bill companies will have to consult with auditors who will be able to advise them on strategies to reduce their carbon emissions.

The tax is set at R120 per tonne of carbon dioxide and will be lowered to a rate of R6 to R46 per tonne within 3 years due to tax breaks, allowances and performance incentives.

Phase 2 of the bill will be subject to a review by the treasury after at least three years of its implementation.

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