South Africa announces sustainability and energy tax measures as part of 2024 Budget Review

• Carbon tax rates have been increased as expected, and carbon offset allowances are set to increase.
  
  
• Tax incentives for energy efficiency under Section 12L remain unchanged.
  
  
• Investment allowances were announced for qualifying spend on electrical and hydrogen-powered vehicle production capacity.

On 21 February 2024, South Africa's Minister of Finance announced the 2024 Budget Review. A number of sustainability and energy measures were included to support the green transition. Key developments include:

• Carbon tax rates: In line with expectation, carbon tax rates increased to 190 South African rand (R190) per ton of CO2, up from R159 per ton of CO2 with effect from 1 January 2024. The South African Treasury is consulting to implement the carbon tax penalty of R640 per ton of CO2 for emissions exceeding carbon budgets. An announcement and discussion paper are expected, and it is likely that the penalty rate will be effective from 1 January 2025.
  
  
• Carbon fuel levy: This levy increased to 11 cents1 (11c) per liter for petrol and 14c per liter for diesel, from 1 January 2024.
  
  
• Carbon offset allowances: The 5% carbon budget allowance will be replaced — a proposal would boost the carbon offset allowance by 5% to drive investment in carbon reduction projects.
  
  
• Motor vehicles emission tax: The tax is increased, from 1 April 2024, to R146 per gram of CO2 emissions per kilometer for passenger vehicles, up from R132.
  
  
• Tax incentive for energy efficiency: The 95c per kilowatt/hour rate will continue to apply until 31 December 2025.
  
  
• Renewable energy: An increase is proposed in the limit for renewable energy projects that qualify for carbon offset allowances, from 15 megawatts to 30 megawatts.
  
  
• Investment allowances for electrical and hydrogen-powered vehicles: A 150% investment allowance is provided for qualifying spend in the initial year of investment, starting from 1 March 2026. This incentive spans a 10-year period and is intended to complement the current support provided by the Automotive Production and Development Programme. At this stage, it is unclear whether the incentive will apply to component manufacturers.
  
  
• Plastic bag levy: The levy increased from 28c per bag to 32c per bag, as of 1 April 2024.

Business implications

It is important for businesses operating in Africa to consider these new tax announcements and the potential impact on their existing or planned projects. In particular, OEMs in the electric and hydrogen auto value chain are encouraged to review and finalize their NEV investment plans in line with the new allowances available.

Businesses will want to monitor the proposal to penalize operations that exceed their carbon budgets, given the potential impact on trade-exposed businesses to be subject to the Carbon Border Adjustment Mechanism (CBAM) and of an increase on costs and operations.

Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Advisory Services (Pty) Ltd, Johannesburg

• Duane Newman
  
  
• Grant Whittaker
  
  
• Zelda Burchell

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.