4 June 2009

South Africa: Treasury Plans Green Taxes

Johannesburg — IN LINE with international trends, the government has proposed environmental tax incentives in an attempt to address the negative effects of climate change.

The draft Taxation Laws Amendment Bill 2009, which was released for comment earlier this week by the Treasury, contains two incentives in support of the environment.

Businesses will be able to cut their tax bill by reducing their carbon emissions.

Firstly, an income tax incentive is proposed for any business that takes part in a clean development mechanism project. The incentive applies to the disposal of carbon emission reductions. The disposal of these carbon reductions will be exempt from income tax.

The cleaning mechanism development initiative was set up under the Kyoto Protocol to allow industrialised countries to invest in projects to reduce carbon emissions. The reduction of carbon emissions is the elimination of harmful industrial by-products.

Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said yesterday there had been a limited uptake of cleaning development mechanism projects in SA.

This was largely due to financial difficulties encountered by companies, he said.

"The proposal to introduce tax incentives on the disposal of carbon emissions was in line with international norms," Brincker said.

"The government recognised that climate change was becoming a top priority."

In December, petrochemicals group Sasol applied to register a clean development mechanism project with the United Nations Framework Convention on Climate Change, for the right to produce and sell carbon credits.

SA's greenhouse-gas emissions rank in the top 20 in the world, contribute 1,8% to global emissions and are responsible for 42% of Africa's emissions.

Secondly, the amendment bill proposes that businesses will be able to obtain deductions from income tax for energy saved provided there is documentary proof of the resulting energy efficiencies certified by the Energy Efficiency Agency.

Meanwhile the bill also contains a set of proposals on the conversion of secondary tax on companies to the new dividends tax. Brincker said the amendments would provide clarity for companies.

While the new system is better aligned with international practice, the government had recognised that it was more complicated as it now had to cover a wide range of shareholders, he said.

The South African Revenue Service stood to lose a "few billions of rand" in the conversion process, he said.

Further, the bill contained amendments relating to the repeal of the deemed kilometre method for deducting travel expenses with effect from March 1 next year. Taxpayers who used their private vehicles for businesses purposes and who received a travel allowance would still be able to claim such expense by maintaining a logbook of business kilometres travelled. "Many taxpayers had abused the travelling allowance system in the past," Brincker said.

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