Johannesburg - The SA government has proposed green tax incentives to help counter the effects of climate change, but they could be ineffective, experts say.
The national treasury released the draft Taxation Laws Amendment Bill on June 1 for public comment, proposing that the sale of certified emission reductions (CERs), or carbon credits, be exempt from income tax. Carbon credits are normally taxed on profits of sale.
However, SA's greenhouse gas emissions rank among the top 20 in the world and contribute 1.8% to global emissions. The country is also responsible for 42% of Africa's emissions.
"It's because we use a lot of coal to produce of our electricity," said Izak Swart, Deloitte associate director for tax management consulting. "On a per-capita-of-GDP [gross domestic product] basis, South Africans are some of the worst emitters in the world."
In terms of the Kyoto Protocol, developing countries like South Africa do not have to place limits on emissions. However, regulations will be renegotiated in 2012, after which the country may be forced to lower its emissions.
In addition to the carbon credit tax exemptions, the draft also proposes income tax deductions for energy efficient businesses.
Taxing problem
However, Swart said limits specified in the draft may make it unlikely for some incentives to be highly effective.
A shortfall is that the incentive will only be valid until December 31 2012; the tax benefit will only be an incentive for the partial duration of the carbon credit.
"The problem is that once you enter or get a carbon credit it's for a much longer period than 2012, so you'll still have it after 2012 and will be taxed on it afterwards," he said.
In addition, Swart said other issues such as foreign ownership of certain projects haven't been dealt with and could be problematic.
"The limited time period for this exemption means that the tax incentive is unlikely to be highly effective," he said, adding that only the first sale of CERs is exempt from tax.
Webber Wentzel director of corporate tax Patricia Williams said taxpayers who wish to use the energy efficiency incentive would have to obtain an energy certificate from the SA National Energy Development Institute.
The taxpayer would then be entitled to an allowance of 50% of the energy efficiency savings, multiplied by a rate to be determined in terms of regulations issued by the minister of energy.
Treasury and the South African Revenue Service are scheduled to brief parliament's standing committee on finance on the draft legislation in June.
- Fin24.com