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Clarity - insights into issues affecting audit committees - Carbon tax in South Africa - EY - South Africa

Clarity: insights into issues affecting audit committees

Carbon tax in South Africa

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"[The] implementation of a carbon tax could result in a significant swing in their bottom line, possibly turning currently profitable entities into loss making ones."Ross Robertson, Ernst & Young

The South African Government has proposed the implementation of a carbon tax, which was released in draft form in December 2010.

With the burden of the tax likely to be passed on from the entities upon which it is levied to those consuming the resulting products, consumers are asking a very important question: What is this going to cost me?

For some entities, owing to the nature of their operations, the implementation of a carbon tax could result in a significant swing in their bottom line, possibly turning currently profitable entities into loss making ones. Individuals too are carefully considering the effect that such a tax will have on their resultant levels of disposable income in recognition of the fact that the cost of any tax adopted is likely to be passed onto the end user through increased product and service prices.

On the other side of the coin lies the knowledge that something needs to be done to ease the dramatic effects of climate change that are currently being evidenced around the world. There is a specific emphasis on the reduction of carbon emissions.

The social conscience of both corporations and individuals alike cannot object to the principles underlying the introduction of a carbon tax as a mechanism for alleviating the negative effects of carbon emissions into the atmosphere. This is provided that this premise remains the sole motivation for the implementation of the tax and indeed the sole beneficiary of the revenues so derived.

Advantages of the carbon tax:

  • Provide certain levels of predictability in energy prices and affected goods and services can be achieved
  • Guard against the possibility of price volatility being experienced due to market supply and demand dynamics, such as those present in a system involving carbon credits
  • Be administratively efficient and significantly easier implementation than any other feasible alternatives
  • Be theoretically transparent in its implementation and will allow for an increased level of understanding amongst the public carbon tax can be adopted by stakeholders with a tangible interest, resulting in a significantly smaller opportunity for manipulation.

Government's responsibility

  • Government needs to win over the confidence of those bearing the burden of the tax by convincing them of the tangible benefits associated with its implementation.
  • This will require Government to account for the use of all revenues derived from the tax.

Our approach

As a concerned corporate citizen, and professional services provider, we are actively involved in the process of commenting on the draft carbon tax discussion paper so as to assist in the development of the ultimate provision of the tax.

Our close monitoring of the progress of the tax through its development stages, will allow us to fully understand the legislative provisions of the tax in order to better assist our clients in adapting to the implementation of the tax in the most cost-effective manner. Furthermore, we ensure full compliance with the letter of the law so introduced.



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