The question arises how businesses should prepare for the introduction of carbon tax on 1 January 2016, when the legislation has not been released. There are clues in the carbon tax policy paper released in 2013 by National Treasury about what we can expect to see in terms of the pricing of carbon and how it is expected to be phased in over five years. But the details are still unknown six months before the legislation is due to be in force. In this context we have the following steps to suggest to, at least, be as prepared as one can be for this new cost that is going to impact everyone.
The first step is to understand what your company’s carbon emissions are. This is a factual question which will, in almost all cases, require outsourcing to a professional in this area.
The next step is to determine the rough tax liability per year that would arise for that company, in order to best prepare for this additional expense. The carbon tax policy papers sets out what the price per ton of carbon (or equivalent) will likely be depending on sectors and potential rebates.
Next, consider whether there are any opportunities available to the business to reduce its carbon tax liability. Can you reduce your carbon emissions? How do you take advantage of the various tax incentives available? We suggest that you speak to a professional who can take you through the various potential tax incentives.
Take stock of whether your contracts adequately deal with the impending tax. Is there a change of law clause in your current agreement that caters for this situation? In future agreements, how do you cater for the increased costs that may impact on your company or your suppliers? Do your suppliers’ agreements allow them to increase their prices to you when this tax comes into effect?
If you are contemplating a merger, it would be wise to start considering the warranties that may be required in relation to the carbon tax registration, compliance and payment history of the target company.
In summary, every company is going to be directly or indirectly affected by the introduction of the carbon tax because in many cases the carbon tax is going to increase the cost of production either within your company or within the supply chain.
Based on the government’s time frame to implement the legislation on 1 January 2016, there is likely to be a mad rush to comply when the legislation is published. Given the complexity of the issues, it would be wise to begin this process and do what you can sooner rather than later to ensure the smoothest possible transition.