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BUSA welcomes the publication today by the National Treasury of the updated carbon tax policy paper and endorses the need for a second round of comments on carbon tax policy, before the government intends to proceed with the publication of draft legislation to give effect to carbon taxes later this year for implementation from 1 January 2015.  BUSA queries in passing whether these legislative deadlines can be met if comment is being permitted on the carbon tax policy paper up until August 2013.

While BUSA has consistently supported the need to move to a lower carbon intensive economy as being in the long run interests of South Africa, it believes that the carbon tax proposal needs to be further critically interrogated.  BUSA would urge great caution in the implementation of a carbon tax in South Africa, not only because both external and internal economic circumstances have changed considerably since the carbon tax was originally conceived, but also that there remain a number of challenges around the carbon tax proposal that need to be taken into account in the final design if serious unintended consequences are to be avoided.

BUSA’s message of caution is based on inter alia the following considerations:

• BUSA does not accept that the impact of a carbon tax on the country’s economic growth and employment will be largely neutral, as the extent to which the proposed revenue recycling measures will be successful remains uncertain pending further investigation.
• There is a mismatch between the incidence of the carbon tax on industry and consumers generally, on the one hand, and the recycling benefits on the other.
• The decision to not abolish the electricity levy - which is essentially a tax on carbon - is inconsistent with the commitment to do so made by the Minister of Finance in his 2013 Budget Speech.
• The implementation of the proposed tax also needs to be considered in the context of the National Climate Change Response White Paper, which contemplates a carbon tax as only one of a range of policy instruments to reduce greenhouse gases.
• Although BUSA supports the suggestion that one of the ways to recycle the expected carbon tax revenue is by reducing other taxes, BUSA believes that these decisions must now be captured in the work of the new Davis Commission of Enquiry into the tax regime.  BUSA therefore believes that decisions around the carbon tax in South Africa now need to be seen as part of a bigger picture of tax reform in South Africa.

In the meantime, BUSA has set up a task team to interrogate the policy paper and to formulate a more definitive business view to submit to the National Treasury within the time frame.