Big Tax Hikes Coming for Businesses in South Africa

Big Tax Hikes Coming for Businesses in South Africa

• 04 December 2024
• Faculty News
• Business Tech

Carbon taxes in South Africa are set to rise by over 140% by 2030.

Coupled with the phasing out of tax allowances, some industries may see an overwhelming 340% increase.

This increase threatens to raise electricity costs significantly and impact exports. 

However, Deputy Minister of Electricity and Energy Samantha Graham-Maré said that this can be effectively countered and offers a “key growth opportunity” through investment in renewable energy to mitigate these challenges, create jobs, and ensure economic competitiveness.

In a recent statement, she sought to calm the nerves of businesses and citizens “that the government is working hard to protect jobs and drive economic growth in the face of these new challenges.”

What is Behind this Increase?

Graham-Maré said that with coal still powering nearly 80% of South Africa’s electricity, the upcoming Scope 2 tax on indirect emissions and the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) threaten to raise business costs and put R52.4 billion in exports at risk.

According to the European Commission, the “CBAM is the EU’s tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.”

Additionally, South Africa has assented the Carbon Tax and the Climate Change Acts.

The carbon tax in South Africa is a mechanism implemented to reduce the country’s greenhouse gas emissions and help it meet its commitments under the Paris Agreement.

The tax is being introduced in three phases to help industries prepare for the target carbon price, which is expected to align with the global pricing level per tonne of carbon dioxide equivalent.

The carbon tax impacts businesses through direct taxation on emissions and individuals indirectly through increased fuel and electricity prices.

Graham-Maré said that by 2034, South African companies could face up to a 60% increase in electricity costs due to these new carbon taxes, with rates expected to jump from R190 to R462 (+143%) per tonne by 2030.

She added that as current tax allowances are gradually phased out, some industries may see an overwhelming 340% increase in carbon tax payments.

There is a Silver Lining

However, Graham-Maré said that “there is a path forward to secure jobs and promote growth,” and emphasises that “now is the time to invest in cleaner, cost-effective energy sources to build a more resilient, sustainable economy for all South Africans.”

“Our priority is protecting jobs and strengthening our economy,” said Graham- Maré.

“By embracing renewable energy, we’re not only reducing emissions but creating new opportunities for growth, securing our industries’ future, and keeping South African businesses competitive in a global market that values sustainability,” she added.

The tax revenue collected by South Africa’s carbon tax is meant to be “recycled” back into green initiatives.

While this revenue is expected yield significant revenue, it still falls well short of what the country would need for a Just Energy Transition.

Developing countries value coal as a cheap and convenient source of power they can use to modernise their economies – just as Western nations did before them.

Commitments from Western nations who have spearheaded this shift away from coal have consistently fallen short of their commitments.

This is expected to be addressed with South Africa’s G20 Presidency.

Regardless, “transitioning to cleaner energy is essential for maintaining profitability and creating a brighter future,” said Graham-Maré.

“The government stands ready to work with businesses to unlock the potential of renewables, helping reduce dependence on coal, stabilise energy prices, and secure a prosperous future for South African workers and families,” she added.

SOURCE: Business Tech

0 COMMENTS

LEAVE A COMMENT