In his 2013 budget speech, The South African Finance Minister Mr Pravin Gordon announced that the landscape of taxation in South Africa will change in January 2015 with the introduction of carbon tax.

South Africa is considered among the world’s biggest greenhouse gas polluter about 440m tons emitted annually, according to 2008 estimates by the United States’ Carbon Dioxide Information Analysis Center. Given his position in term of gas polluter in the world, low carbon economy  is the main objective of the introduction of carbon tax in SA.

 According to the Finance Minister, “The Development Plan further calls on government to send a signal to industry and consumers that we are living in an environmentally stressed world and so Government proposes to price carbon by way of a carbon tax at the rate of R120 per ton of CO2 equivalent, effective from 1 January 2015”. An annual escalation of 10% is proposed thereafter. “To soften the impact on the business, a tax-free exemption threshold of 60 per cent will be set, with additional allowances for emissions intensive and trade-exposed industries”. Industries to be subject to the carbon tax include electricity, petroleum, iron, steel and aluminium. Some sectors will be granted a relief of up to 80% and this will be the case for the Iron & steel, glass & ceramics, cement, chemicals and aluminium. Pulp & paper, petroleum & oil refining and sugar will have a relief of 70%. “The agricultural sector will receive 100% relief and no extra relief for non-renewable electricity generation”.

Furthermore, Mr Pravin Gordon noted that “to ensure that South Africa produces fuel that is more environmentally friendly, support mechanisms for both biofuel production and the upgrade of oil refineries to cleaner fuel standards will be introduced”. In addition, the Finance minister insists that government will continue to direct spending towards environmental programmes, such as installing solar water geysers, procuring renewable energy, low carbon public transport, cleaning up derelict mines, addressing acid mine drainage, supporting our national parks.

The easy question that many observers are asking is that of knowing as to whether the Treasury first motive is to reduce carbon emissions or to create a new source of fiscal revenue? The business world in South Africa  still much divided to answer that question. South African’s officials however, insist by making it clear that “the primary motive is to reduce carbon emissions and not to create another source of tax revenue”. According to the Treasury, South Africa aims to reduce its carbon emissions by 34 percent by 2020 and by 42 percent by 2025.

Current trends in carbon emissions show that more than 70% of the country’s carbon emissions are from coal; followed by oil, cement and other sectors. Is the carbon tax not going to affect the economic growth in South Africa? That’s another debatable question, given the fact that the country relies heavily on the electricity produced from coal. The national electricity utility (Eskom), will definitely pass on the cost of the carbon tax to the electricity users, which will put additional burden on the consumers shoulders.

These debatable questions and many others will hopefully find answers with the full clarity on the carbon tax set to be available once the treasury releases a final discussion document on carbon tax.

Meanwhile, it is good to know that South Africa is not the first country to introduce the carbon tax. Finland did it since1990; Canada and United States are among them. South Africa will join more than 10 countries or carbon trading schemes.

Click here to view table.