South African industry has until August 2 to comment on the carbon tax proposals tabled by the National Treasury on May 2.

Government aims to promulgate a phased-in tax rate of R120/t of carbon dioxide equivalent (CO2e), increasing 10% a year during the first phase, in an attempt to curb the country’s greenhouse-gas (GHG) emissions.

The country aims to decrease its GHG emissions by 34% by 2020 and by 42% by 2025.

The second and final comment paper, entitled ‘Reducing greenhouse-gas emissions and facilitating the transition to a green economy’, follows on the 2010 discussion paper and takes into account all comments received, as well as the 2006 Environmental Fiscal Reform policy paper.

Government intends to publish draft legislation later this year, with promulgation expected on January 1, 2015.

During the first five years, from the date of implementation until December 31, 2019, the agricultural and waste sectors will be exempt from paying the tax, while the electricity sector and other yet- to-be-named select sectors will qualify for a tax-free threshold of up to 70% and 90% respectively.

The tax-free threshold and additional relief represent a tax of between R12/t and R48/t of CO2e. The exemptions will be reviewed as the second phase progressed.

From 2020, the five-year Phase 2 will kick in, while follow-up phases could be “explored at a later stage”.

“The primary objective of implementing carbon taxes is to change future behaviour, rather than to raise revenue,” the paper states, citing a shift in production and consumption patterns to low-carbon and energy efficiency means and the uptake of low carbon-emitting alternatives as consequences of carbon pricing.

The new policy has sparked concern among heavy pol- luters and general stake- holders, as their earnings could be hit.

The policy suggests basing the new tax on “revenue recycling” and “tax shifting”, wherein taxes are reduced on positive contributors such as income and payroll, while the tax on negative products, such as those that produce GHGs or pollution, are increased to balance the impact and generate both environmental and employment benefits.

The new policy, however, retracts Finance Minister Pravin Gordhan’s indication of an abolition of the electricity levy, as stated in his 2013 Budget speech.

Despite Business Unity South Africa’s (Busa’s) sup- port of the transition to a less carbon-intensive economy, the organisation does not believe the impact of the tax will be “largely neutral”.

“There is a mismatch between the incidence of the carbon tax on industry and consumers generally, on the one hand, and the recycling benefits on the other.

“Busa would urge great caution in the implementation of a carbon tax in South Africa, not only because both external and internal eco- nomic circumstances have changed considerably since the carbon tax was originally conceived, but also [because] there remain a number of challenges around the carbon tax proposal that need to be taken into account in the final design if serious unintended consequences are to be avoided,” the organisation said in a statement.

Meanwhile, the carbon tax policy paper also notes that the tax is expected to “create dynamic incentives for research, development and technology innovation in low-carbon alternatives”, and reduce the price gap between conven- tional, carbon-intensive technologies and new low-carbon alternatives.

Busa said a transition move to a lower carbon intensive economy was in the long-run interests of South Africa, but added that the carbon-tax proposal needed to be “critically interrogated”, particularly in light of changed external and internal economic circumstances.

Busa also did not accept that the impact of a carbon tax on the country’s economic growth and employment would be neutral and argued that the decision to not abolish the electricity levy was inconsistent with the commitment to do so made by Gordhan in his 2013 Budget speech.

The organisaiton added that decisions around the carbon tax should be part of a bigger picture of tax reforms in South Africa, to which the National Treasury had also committed.