National Treasury is keeping its cards close to its chest on how it envisions the rollout of Phase 2 of the carbon tax, but taxpayers can expect some announcements in this regard in the 2022 National Budget Speech next week.
This is according to PwC’s budget predictions report Reform to Grow, in which it notes that Finance Minister Enoch Godongwana is likely to increase the carbon tax rate. Phase 2 of the carbon tax regime will kick in on January 1, 2023.
PwC noted that reasonable predictions were that the government would increase the carbon tax rate from R134 per t/CO2e to R144 or R145 per t/CO2e in 2022 (CPI + 2%). “The carbon tax allowances, as they currently stand, are likely to be amended during the course of 2022 – specifically the basic tax-free allowance, currently set at 60%, may be reduced and phased out over time,” PwC said.
“The carbon budget allowance, aligned to the voluntary carbon budget programme, will be phased out at the end of 2022.”
The report suggests that the Climate Change Bill will mandate participation in carbon budgets, and it is expected that taxpayers that exceed their carbon budget will be subjected to a penal carbon tax rate of around R600 per t/CO2e for every ton of emissions above their assigned budget.
“We also anticipate that the application of the carbon tax may be expanded in Phase 2 to also cover the agriculture, forestry and other land use and waste sectors, which are currently excluded from the scope of the tax,” PwC said.
Godongwana will deliver the budget speech on February 23.
Meanwhile, PwC noted that during Budget 2020, the government had announced that an environmental fiscal reform review paper would be published to explore the potential for new environmental taxes and reforms to existing instruments, for example:
- restructuring the general fuel levy to include a local air pollution emissions component
- alleviating traffic congestion through road pricing charges and design options for an annual carbon dioxide tax on vehicles, in collaboration with the Department of Transport and provincial governments
- reviewing inefficient fossil fuel subsidies, including the VAT zero-rating of transport fuels
- considering product taxes on electrical and electronic waste
- reviewing the tax treatment of company cars to incentivise the use of more fuel-efficient vehicles. However, PwC noted that National Treasury had yet to publish this paper.
“It is anticipated that government will continue to review environmental taxes, and increasing developments in this area are likely,” PwC said.
