Carbon tax: Be proactive


 

 
 
What businesses should consider.

 

JOHANNESBURG – Although there is still a lot of uncertainty surrounding the introduction of a local carbon tax, businesses already have to take steps to try and mitigate its impact.

According to a second policy paper published earlier this year, National Treasury is proposing that a carbon tax be levied on emissions from January 1, 2015 onwards.

While the proposed tax has been in the pipeline for some time, awareness levels, especially amongst smaller and medium businesses, have been less than satisfactory. 

Speaking to Moneyweb on the eve of the South African Institute of Chartered Accountant’s (Saica) 2013 Tax Conference, Chaya Lakhani, partner: indirect tax at PwC, said South African businesses have a lot of regulation to contend with and their concern generally is more with what “is on their plate today”.

Moreover, the proposed carbon tax is a complex topic to understand and businesses still have to get more clarity on many of the issues surrounding it – such as the final calculation thereof. There is also a lot of information in the public arena, and many businesses are unsure what they should believe. Lakhani says the two papers that have been published on the carbon tax thus far, do not provide certainty about the way forward in all instances.

But the doubt surrounding the tax does not mean that businesses should take a wait-and-see approach. Even for those businesses that do not operate in the energy and mining industries, which stand to be worst affected, there could be an indirect impact in terms of rising electricity prices or transport costs.

Lakhani proposes that businesses take the following steps: 

1.        Understand 

Businesses have got to come to terms with the current data available and how it will be affected if the legislation is introduced.

Lakhani says the starting point would be to try and understand what is being proposed and how the calculations will work. Depending on the industry there are certain benchmarks that should be taken into account.

Initial estimates suggest that around 8 000 factories will be affected. Lakhani says while businesses in the energy sector are mindful of the proposal and how it stands to affect them, many factories at the bottom end of the market are unaware of the potential impact.

Although there is uncertainty on how the final calculations will work, businesses should take note of it. They also have to understand what their core concerns are. She explains that some businesses may be intensive energy users that could have cost implications for power usage.

Though its carbon emissions might be low, the indirect impact of electricity price increases (Eskom is likely to pass on the cost of carbon emissions to consumers, resulting in higher electricity prices) or transport carbon could also have an impact.

A general tax-free threshold of 60% will apply during the first phase of implementation, and businesses should consider whether this allowance will be enough to offset the indirect impact of the proposed tax.

2.        Engage 

Lakhani advises business to engage with their stakeholders such as suppliers or subcontractors to get a sense of how they will be dealing with the tax themselves.

This is also true for staff and regulators. With regards to staff, business should explain how the carbon tax is going to affect the business and then involve employees to help mitigate the impact. This could be as simple as proposing ideas to improve the way a production line moves, she says.

It might also be necessary to approach consultants to get a better understanding of the impact.

The National Development Plan (NDP) 

Lakhani says some issues also arise from the NDP.

The concern is that the cost increases associated with the introduction of a carbon tax could result in some job losses. The flipside is that it will allow business to innovate to reduce carbon emissions that could have a positive impact on job creation, Lakhani says.

Until now, South African businesses generally have not been at the forefront of innovation.

3.        Strategise

Lakhani says businesses should consider how they can reduce their carbon footprint, reuse materials or recycle.

Alternatives should be considered as well as the cost benefits of alternative approaches.

One important point for business to contemplate is that if the tax does affect them, if they will be passing it on to clients and if this would be a feasible model in light of domestic and international competition.

Eskom for example currently has no choice but to pass on the cost of the carbon tax, but other businesses may be able to mitigate the impact by using improved technology, less energy or land or refining their waste management.

Another complication with regards to cost is that business would only be able to calculate the final costs of emissions after the reporting cycle, she says.

4.        Innovate 

Lakhani says the local innovation process will take time.

New technology and thought processes will help business mitigate the impact of the carbon tax, but unfortunately the finance to facilitate that, is not readily available.

The situation is further complicated by the fact that many innovation processes produce other complexities – for example alternative fuels could have a detrimental impact on certain basic foodstuffs.

“So it is balancing the different demands on the same resources that will assist the innovation.”   

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