It has already been 4 months since the South African Carbon Tax was implemented on the 1st of June 2019. This has seriously caused businesses to start exploring options to reduce the subsequent tax liability.
During the first phase (June 2019 – Dec 2022) various tax-free allowances are applicable and, depending on the nature of your business, could result in 95% deduction on tax-payable. One of the simplest means to reduce tax payable is by purchasing domestic carbon offsets. The big question is: “how significant is the impact of purchasing credits in terms of tax-savings?” As an example, a carbon footprint of 50 000t CO2e direct emissions and a 10% offset allowance can easily result in R100 000 tax savings per year (depending on the price of the offset, which is capped at the marginal tax rate of R120 per tCO2e, and not the effective tax rate).
Purchasing offsets however requires planning and thinking ahead. Here’s why:
• There is lead time for credits to be generated
• Waiting until the final hour to purchase offsets can incur risks.
• Given the current spike in demand , in anticipation for SARS-season, there may not be sufficient credits.
• Modelling carried out by various organisations shows that there will always be more demand for offsets than what the market can supply.
• We expect offset supply to be especially constrained during the first two years of phase one of the carbon tax.
• This means that the low supply will drive up costs and hence reduce savings.
By timely securing carbon offsets for your business you will be guaranteed a carbon tax saving at the best price, whilst simultaneously contributing to a more sustainable South Africa.
For more information, get in touch with us today.