How can taxes be used to
reinforce environmental policies
in South Africa?
A research report by Jessica van Aarle
Contents page
Declaration
i
Abstract
ii
Chapter 1: Introduction
1
Chapter 2: Current environmental policies
8
Chapter 3: Use of taxes to support environmental policies
13
Chapter 4: Current environmental taxes
28
Chapter 5: Suggestions for further taxes
40
Chapter 6: Conclusion
44
Reference List
Declaration
I, Jessica van Aarle, declare this to be my own original work and where the work of other
has been used this has been appropriately referenced.
Jessica van Aarle
Abstract
Environmental taxes are extremely topical - not only as a result of the
environmental challenges that face governments around the world, but also
because the economic pressures that have seen these governments seeking
new tax revenue streams.
This paper reviews South Africa’s current environmental policies and evaluates
how, from a theoretical point of view, taxes can be used to support these
environmental policies. It then reviews the environmental taxes that are currently
in place in South Africa and considers how these taxes can be improved. Finally,
the paper considers what new taxes should be introduced to further reinforce
South Africa’s environmental policies.
The paper provides an important study on the context of environmental taxes in
South Africa and provides useful suggestions that could be taken into account in
developing tax policy in this area.
Chapter 1 - Introduction
Environmental issues are becoming increasingly important in today’s economic
environment. In the years since 1994 South Africa has shown strong economic
growth and has made strides towards reducing poverty, creating jobs and
addressing inequality.1
However, little has been done to ensure that the
environment will be able to continue supporting this level of growth. As was
noted in the Budget Tax Proposals 2008/9, ‘environmental considerations will
affect the sustainability of economic growth in the long term’.2 This statement
reflects the importance of protecting the environment, should a country wish to
grow sustainably.
The high level of economic growth in South Africa has
exacerbated the environmental challenges facing the country and will continue to
do so if its natural resources are not effectively managed.
South Africa is
currently in the top twenty highest greenhouse gas emitters in the world and is
the largest emitter of greenhouse gases in Africa, accounting for 42% of the
continent’s carbon emissions.3
As Naledi Pandor (Minister of Science and
Technology) said, “we cannot stop development in the developing world, but we
1
Morden, C & Hemraj, S 2007, South Africa’s path towards an environmental fiscal reform, World
Eco Tax, viewed 11 March 2010,
<http://www.worldecotax.org/downloads/Presentations/MordenCecilHemrajSharlinSouthAfrica.pdf
>.
2
South African Revenue Service, 2008, Budget tax proposals 2008/9, viewed 11 March 2010,
<http://www.treasury.gov.za/documents/national%20budget/2008/guides/Budget%20Proposals%
202008.pdf>
3
Rego, N 2009, ‘Green taxes may be ineffective’, Fin24, 10 June, viewed 11 March 2010,
<http://www.fin24.com/articles/default/display_print_article.aspx?ArticleId=2528215>.
can control the emission of greenhouse gases”.4
This reflects the view that
South Africa should continue to develop and grow, but should do so responsibly.
Environmental issues have become of great concern to businesses that fear that
they will not be sustainable in the long run unless remedial action is taken with
respect
to
the
environment.
In
a
recent
survey
undertaken
by
PricewaterhouseCoopers, 84% of executives interviewed, representing fifteen
countries, felt that climate change would affect the way in which they conducted
business.5
Figure 1: Likely level of change in the way you conduct your business as a result of climate
6
change over the next 2-3 years
This is indicative of the shifting attitude of business towards sustainability and
environmental reform.
4
In the most recent King III Code on Corporate
South African Revenue Service, 2010, National Budget Review 2010, viewed 11 March 2010,
<http://www.sars.co.za/home.asp?pid=55412>.
5
PricewaterhouseCoopers, 2010, Appetite for change survey, viewed 11 March 2010,
<http://www.pwc.com/gx/en/appetite-for-change/assets/appetite-for-change.pdf>.
6
PricewaterhouseCoopers, Appetite for change survey.
Governance7, a strong emphasis is placed on sustainability and considering the
impact of business on ‘people, planet and profit’, instead of just focusing on the
bottom line. These developments are mirrored around the world as business
awakens to its responsibility to consider and manage the environment.
As government and business collectively look to address these challenges, taxes
will have an integral part to play.8 Organisation of Economic Co-operation and
Development (OECD) data shows that over the last ten years environmental
taxes have been effective and efficient in supporting environmental policies in
OECD countries.9 However, the implementation and design of these taxes, as
well as the ultimate use of the funds generated from them, will determine whether
or not they will be effective in changing behaviour or improving environmental
conditions and combating climate change.
In 2006 the National Treasury of
South Africa released a Framework for considering market-based instruments to
support environmental fiscal reform in South Africa.10 This was the first important
step in South Africa towards using taxes to support environmental policies in the
country.
7
Institute of Directors Southern Africa, 2010, King III Code on Corporate Governance.
PricewaterhouseCoopers, 2010, Sustainability and climate change, viewed 11 March 2010,
<http://www.pwc.com/gx/en/tax/sustainability-climate-change/sustainability-climatechange.jhtml>.
9
Organisation for Economic Co-operation and Development, 2001, Environmentally related taxes
issues and strategies, viewed 12 March 2010,
<http://www.oecd.org/dataoecd/39/18/2674642.pdf>.
10
National Treasury, 2006, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa, viewed 12 March 2010,
<http://www.treasury.gov.za/public%20comments/Draft%20Environmental%20Fiscal%20Reform
%20Policy%20Paper%206%20April%202006.pdf>.
8
The purpose of this report will be to critically analyse how taxes can be used to
support environmental policies in South Africa. Firstly, South Africa’s current
environmental policies will be discussed. Secondly, the use of taxes to support
environmental policies will be examined from a theoretical point of view. Thirdly,
a study of current environmental taxes in South Africa and their effectiveness in
combating environmental problems, as well as a discussion of how current taxes
should be reformed to better support environmental policies. Lastly, this report
will address what new environmental taxes could be introduced to further
reinforce these policies.
Importance
In the last fifteen years, South Africa has shown robust economic growth.11 As a
result of this, its environment has been severely damaged through excessive
farming and mining, as well as extensive air pollution from carbon emissions,
mainly due to electricity generation.12
The South African government has
realised that unless something is done about the environmental degradation,
South Africa will be unable to grow in the future as the environment will not
support that growth.
In order to make economic growth sustainable the
government has committed itself to making the environment a priority in South
Africa in the coming years.
In May 2010, the Department of Environmental
Affairs issued a Draft National Strategy on Sustainable Development and Action
11
12
Morden, C & Hemraj, S, South Africa’s path towards an environmental fiscal reform.
Morden, C & Hemraj, S, South Africa’s path towards an environmental fiscal reform.
Plan 2010 – 2014.13
This plan develops a strategy to promote sustainable
development. The release of this national policy document is an indicator that
the government of South Africa is, indeed, taking environmental reform very
seriously.
Experience in OECD countries has shown that one of the most effective ways to
promote environmental reform is by using taxes to support the country’s
environmental policies.14 Current environmental legislation in South Africa has
clearly not been effective in preventing the degradation of the country’s
environment; therefore a new approach is needed. This report will show that the
approach that is likely to be the most efficient and effective in reforming the
environment, at the lowest cost, will be using the tax system to tax those who
damage the environment and reward those who protect it.
Research Problem
The aim of this research project will be to answer the following question:
How can taxes be used to reinforce environmental policies in South Africa?
In answering this question the following will be considered:
1. South Africa’s current environmental policies;
13
Department of Environmental Affairs, 2010, Draft National strategy for sustainable development,
viewed on 27 May 2010, <http://www.info.gov.za/view/DownloadFileAction?id=122675>.
14
Organisation for Economic Co-operation and Development, Environmentally related taxes
issues and strategies.
2. How, from a theoretical point of view, taxes can be used to support these
environmental policies;
3. What environmental taxes South Africa currently has in place and how
these can be improved;
4. The new taxes should be introduced to further reinforce South Africa’s
environmental policies.
Methodology
This study will be a normative study based on an extensive literature review. The
results of this review will ascertain why environmental taxes are important, what
environmental taxes currently exist in South Africa and how they can be used to
reinforce environmental policies.
The literature to be reviewed will, inter alia, comprise the following:
1. Books such as Tax and the Environment: A World of Possibilities edited by
Anuschka Bakker
2. Financial publications such as Financial Mail (South Africa) and The Economist
3. Journals such as The Wits Business School Journal and TAXtalk
4. Government reports including A Framework for Considering Market-Based
Instruments to Support Environmental Fiscal Reform in South Africa
5. Various OECD policies and documents
6. Legislation in the form of the Income Tax Act No. 58 of 1962 and the Customs
and Excise Act No.91 of 1964
7. Various websites dealing with environmental issues
8. Discussion papers
Scope and limitations
This report will focus on how South Africa can use taxes to reinforce its
environmental policies. This will include a brief review of current environmental
policies and goals in South Africa. Environmental taxes in other countries will not
be discussed in detail.
In answering the research question the report will focus mainly on the income tax
implications for taxpayers in South Africa.
Only environmental taxes and
subsidies will be discussed, other market based instruments are excluded from
the discussion. Individuals will be discussed, but they will not be the focus of the
discussion.
Furthermore this report will discuss taxes levied only at a national level. Taxes
levied by municipalities or provinces will therefore not be studied.
Specific
regulations and laws relating to the environment (other than tax laws) will not be
discussed.
Chapter 2: Current Environmental Policies in South Africa
South Africa’s environmental policies are governed by several spheres of both local and
national government. As this report focuses on environmental taxes levied at a National
level only, environmental policies at a local government and municipal level will not be
discussed. The national government departments responsible for environmental policies
include the Department of Energy, the Department of Environmental Affairs, the
Department of Mineral Resources, the Department of Water Affairs and the Department
of Agriculture, Forestry and Fisheries.15 As a result of this fragmented approach, with so
many departments involved, to environmental policy, South Africa does not have an
overarching environmental policy. However, the overall law on which the policies of all
these different departments are based is the Constitution.
15
South African Government, 2010, South African government online, viewed 27 May 2010,
<http://www.info.gov.za/aboutgovt/dept.htm>.
Section 24 of the Bill of Rights of the Constitution of the Republic of South Africa No. 108
of 199616 guarantees environmental rights for the people of South Africa. Section 24
states that ‘...[e]veryone has the right:
(a) to an environment that is not harmful to their health or well-being; and
(b) to have the environment protected for the benefit of present and future
generations,
(i) through reasonable legislative and other measures that prevent
pollution and ecological degradation;
(ii) promote conservation; and
(iii) secure ecologically sustainable development and use of natural
resources while promoting justifiable economic and social development...’
Environmental policy therefore stems from the highest law in the land, the Constitution.
The Constitution however, does not lay down the detail of environmental policy: it simply
dictates the principles on which it should be based. Paragraph (b) in particular, alludes
to the ideal of sustainable development. It is this ideal on which almost all of South
Africa’s environmental policies are based and therefore the concept of sustainable
development warrants more detailed discussion.
Sustainable development
16
Chapter 2 of the Constitution of the Republic of South Africa Act No. 108 of 1996.
Sustainable development is defined in the Brundtland Report17 as ‘development that
meets the needs of the present without compromising the ability of future generations to
meet their own needs. It contains within it two key concepts:
•
the concept of needs, in particular the essential needs of the world's poor, to
which overriding priority should be given; and
•
the idea of limitations imposed by the state of technology and social organization
on the environment's ability to meet present and future needs.’
Sustainable development has gained increased recognition, worldwide, as a concept for
development that recognises the interdependencies between economic growth, social
equity and environmental integrity.18
The issue of sustainable development is of
particular relevance to South Africa, as South Africa has experienced strong economic
growth in the last fifteen years but has done so without much regard for the
environment.19 This has led to environmental degradation which needs to be halted if
South Africa wishes to continue to grow.
The issue therefore became making the
abstract concept of sustainable development real for South Africa.
With this in mind, the Department of Environmental Affairs issued a Draft National
Strategy on Sustainable Development and Action Plan 2010 – 201420 in May 2010. This
strategy recognises that South Africa’s natural resource base is under severe pressure,
that many ecosystems are already severely degraded and that climate change is likely to
have a significant impact on South Africa. It then goes on to develop a strategy to
promote sustainable development. The elements of this strategy include:
17
World Commission on Environment and Development, 1987, Our common future, viewed 27
May 2010, <http://www.iisd.org/sd/>.
18
Department of Environmental Affairs, Draft National strategy for sustainable development.
19
Morden, C & Hemraj, S, South Africa’s path towards an environmental fiscal reform.
20
Department of Environmental Affairs, Draft National strategy for sustainable development.
Directing the development path towards sustainability;
Changing behaviour, values and attitudes; and
Restructuring the governance system and building capacity.21
Based on the above it is clear that South Africa’s main priority is sustainable growth. To
give effect to this goal, South Africa has several specific Acts dealing with environmental
issues.
Current environmental legislation in South Africa
There are several Acts currently dealing with various environmental issues.
These
include the National Energy Act No. 34 of 2008. This Act aims to ‘ensure that diverse
energy resources are available, in sustainable quantities and at affordable prices, to the
South African economy in support of economic growth and poverty alleviation, taking
into account environmental management requirements and interactions amongst
economic sectors’.22
The Atmospheric Pollution Prevention Act No. 45 of 1965 aims to prevent the pollution of
the atmosphere by giving the Minister of Environmental Affairs the power to declare
certain areas restricted areas in terms of what gases may be emitted as well as enabling
him to control the emission of greenhouse gases through penalties levied when
excessive amounts of dangerous gases are emitted.23 Another Act dealing with similar
21
Department of Environmental Affairs, Draft National strategy for sustainable development.
National Energy Act No. 34 of 2008.
23
The Atmospheric Pollution Prevention Act No. 45 of 1965.
22
issues is the Air Quality Act No. 39 of 2004. This Act provides laws for regulating the
quality of air, including standards regulating air quality monitoring, in order to protect the
environment and ensure sustainable development.24
The National Water Act No. 36 of 1998 recognises that water is a scarce resource and
therefore acknowledges government’s responsibility for protecting water quality and
ensuring that water is used sustainably.25
All these Acts are supported by the National Environmental Laws Amendment Act No.
14 of 2009 which amends several of the Acts referred to above. The major amendment
is in terms of the penalties imposed by these Acts. These have been increased to
R5 million and up to five years imprisonment for a first offence under the Atmospheric
Pollution Prevention Act26 and up to R10 million and 10 years imprisonment for any
subsequent offence. The amendments for the other Acts are similar in nature.
Based on the above it is clear that South Africa has adequate environmental legislation
in place, however South Africa is still faced with an environmental crisis. The reason for
this is because this legislation is not strictly imposed.
One of the reasons why its
application is so poor is because the cost of imposing the laws strictly is very high,
requiring lots of administration and officials with the required knowledge of these issues.
An alternative approach, therefore, needs to be taken to ensure South Africa’s
environment is protected for future generations. Chapter 3 of this report will discuss,
from a theoretical point of view, how environmental taxes can be used as a way of
supporting governments’ environmental policies.
24
Air Quality Act No. 39 of 2004.
National Water Act No. 36 of 2008.
26
The Atmospheric Pollution Prevention Act No. 45 of 1965.
25
Chapter 3 – The use of taxes to support environmental policies
The role of environmental taxes has gained prominence in recent years as a tool
to support governments’ environmental policies. Environmental taxes are being
increasingly used in OECD countries, with all member countries having
introduced such taxes to a varying extent.27 This chapter will examine why these
taxes are favoured as a means of bringing about environmental reform and how
they can be used, on a theoretical basis, to support governments’ environmental
policies.
Definitions
An environmental tax is internationally defined ‘as a tax whose tax base is a
physical unit that has a proven specific negative impact on the environment’.28
27
Organisation for Economic Co-operation and Development, Environmentally related taxes
issues and strategies.
28
National Treasury, 2006, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa, viewed 12 March 2010,
<http://www.treasury.gov.za/public%20comments/Draft%20Environmental%20Fiscal%20Reform
%20Policy%20Paper%206%20April%202006.pdf>.
What this effectively means is that any tax whose tax base is environmentally
harmful meets the definition of an environmental tax, even if the aim of the tax is
not to protect the environment. Based on this definition, any tax on transport
fuels, emissions, waste, energy or motor vehicles will be an environmental tax,
even if the sole aim of the tax is to raise revenue for the fiscus. This highlights
the fact that many taxes that were historically introduced to raise revenue,
without consideration for the environment, are now considered to be
environmental taxes. However, in order to use environmental taxes effectively,
governments need to realise that, despite the definition, only a well designed tax
whose aim is to protect the environment will be effective in supporting
environmental policies.
A tax is defined as ‘a compulsory unrequited payment not proportional to the
good or service received in return for that payment’.29
This means that no
benefits accrue to the person in exchange for paying that tax: it is simply a
payment enforced in terms of legislation. This distinguishes a tax from a usercharge, where a good or service is provided to the consumer in exchange for
making that payment. In the context of environmental taxes it is important to
distinguish between taxes and user-charges as environmental taxes do not
include user charges, they refer only to payments made in terms of legislation for
which no benefit accrues to the payer.
29
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
Environmental taxes and economics
General economic principles recognise that governments should not intervene in
the market. Markets should, themselves, provide an efficient means of allocating
scarce resources.30
However, this principle fails in terms of environmental
goods. The reason for this is that the costs and benefits to the environment are
not usually reflected in the prices of goods and services in the market, and
markets therefore, cannot be relied on to efficiently allocate these resources31. In
light of this there is a strong rationale for government intervention in the market.
However, it is important that there is a clear objective for government intervention
and that an appropriate course of action is identified.
If the intervention is
properly planned it can play an important role in encouraging more efficient use
of scarce resources, however, governments must be certain that the benefit of
intervening will outweigh the costs.
Once governments have identified that there is a need for intervention they must
decide on the form that the intervention will take.
They could introduce
environmental taxes, user charges, subsidies or eliminate perverse subsidies.
The process that governments should follow is illustrated below:
30
Parkin, M, Powell, M & Matthews, K 2008, Economics, Pearson Education Limited, England, p.
345.
31
Parkin, M, Powell, M & Matthews, K 2008, Economics, Pearson Education Limited, England, p.
345.
Figure 2: A process for considering different government interventions
32
This report will focus on environmental taxes and subsidies as the instruments of
choice. The impact of implementing an environmental tax will be that the good
on which the tax is levied will become relatively more expensive. For example, if
32
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
a tax was levied on plastic bags this would make plastic bags relatively more
expensive and as the price of plastic bags increases, the demand for plastic bags
would decrease. In this way governments can discourage consumers from using
environmentally harmful products.
Similarly a subsidy on, for example,
recyclable bags would make those relatively cheaper and therefore encourage
consumers to purchase those instead.
In this way governments can use
environmental taxes to change consumers’ behaviour.
A major concern for governments, who decide to intervene in the market in this
way, is the effect that such an intervention will have on international
competitiveness.
International competitiveness
An OECD investigation revealed that a major obstacle to the introduction of
environmentally
related
taxes
is
the
fear
of
reduced
international
competitiveness.33 The same study found that, at present, environmental taxes
have not caused a significant reduction in international competitiveness, mainly
due to the fact that the countries applying these taxes have provided for total or
partial exemption for energy intensive industries. In other words, the taxes are
levied almost exclusively on households and the transport sector. Providing such
exemptions significantly reduces the effectiveness of these taxes and
33
Organisation for Economic Co-operation and Development, Environmentally related taxes
issues and strategies.
governments who wish to use these taxes to effectively support environmental
policies will have to remove these exemptions. The question then becomes: what
can be done to ensure that international competitiveness is not affected without
providing these exemptions?
Pre-announcing the introduction of the environmental tax and gradually phasing
out the exemptions will ease the implementation and make the effects thereof,
less serious. The government could consider using lower tax rates for the more
internationally exposed sectors to reduce the impact on the country’s
competitiveness34.
Another crucial consideration is that countries around the
world are experiencing similar concerns and international discussion is therefore
critical to ensure that the negative impact on international competitiveness is
minimised.
Another consideration governments need to keep in mind is that these taxes may
also have positive effects on the international competitiveness of the country. As
relative prices change, there will be incentives to expand less environmentally
damaging industries and new industries may also emerge, for example those
selling solar products.35 These industries will be able to compensate for any loss
of tax revenue due to these taxes.
There may also be an incentive for
companies to use more labour to substitute the now relatively more expensive
34
Organisation for Economic Co-operation and Development, Environmentally related taxes
issues and strategies.
35
Glover, D 2002, Research Issues in Environmental Tax Reform, viewed 31 May 2010, <
http://www.idrc.ca/en/ev-8312-201-1-DO_TOPIC.html>.
energy which could lead to an increase in employment rates. Tax shifting is also
an option to reduce the negative impacts on competitiveness. This is discussed
in more detail later on.
Besides the international competitiveness effects, governments also need to
consider the domestic impact of the policy. One of the biggest considerations,
especially for the South African government, would be the income distribution
effects of these environmental taxes.
Income distribution
Research
has
shown
that
environmental
degradation
may
impact
disproportionately on poor and low income groups as these are often the groups
that are most dependant on the quality of environmental goods and the most
vulnerable to their degradation.36 When deciding on what environmental taxes to
introduce, the government therefore needs to ensure that the tax is ‘pro-poor’, in
other words, it must not disproportionately burden low income groups, who are
already suffering because of the environmental damage.37
36
Department for International Development, European Union, United Nations Development
Programme & World Bank 2002, Linking poverty reduction and environmental management:
policy challenges and opportunities, viewed 1 June 2010, <http://www.unpei.org/PDF/Linkingpoverty-red-env.pdf>.
37
Organisation for Economic Co-operation and Development, Environmentally related taxes
issues and strategies.
The issue is that the taxed product is likely to become more expensive. For
example, if government imposes a tax on electricity from coal powered plants,
that electricity will become more expensive and any goods made using electricity
will become more expensive. The poor are likely to be the worst affected as they
do not have access to an alternative source of energy. One of the ways of
mitigating this is to use the revenue from these taxes to increase social grants or
to reduce other taxes e.g. income taxes. This is known as tax shifting and it is
one of the ways that the negative distributional impacts and competitiveness
impacts can be reduced. This is discussed in more detail below.
Tax shifting
Tax shifting, in an environmental context, involves lowering income taxes while
raising taxes on environmentally destructive activities.38 Tax shifting therefore,
does not change the level of taxes, it simply changes their composition. Studies
have shown that more fully taxing pollution could raise more than $1 trillion a
year, worldwide, which could be used to cut taxes on wages and profits by up to
15%.39 What this effectively means is that a tax shift can create jobs and boost
38
Oates, W 1995, ‘Green taxes: can we protect the environment & improve the tax system at the
same time?’, Economic Journal, Vol. 61, viewed 1 June 2010, <
http://www.questia.com/googleScholar.qst;jsessionid=MsShnGcBZpppKs62hffhw2G6QSvy6rnKw
mQMkK2n9GCTGHVxQQ8h!547733517!427202863?docId=5000308269>.
39
Worldwatch Institute, 1997, Shifting tax burden to polluters could cut taxes on wages and profits
by 15%, Worldwatch, viewed 1 June 2010, <http://www.worldwatch.org/node/1609>.
living standards while protecting the environment: a win-win situation for
everyone.40
Nine countries in Western Europe have already begun the process of tax
shifting.41 Denmark, Finland, Germany, Italy, Norway, the Netherlands, Sweden,
Switzerland and the United Kingdom have implemented environmentally related
taxation with explicit cuts in other distortionary taxation.42 This is evidence of the
strong support for tax shifting and the realisation that it is an advantageous way
to bring about environmental reform.
Tax shifting allows the government to simultaneously increase environmental
protection without harming the economy. In fact governments can strengthen the
economy, clean its air and water and reduce the tax burden on the working
class.43 When expressed like this it is clear that tax shifting is not only a way to
reduce the negative competitiveness and distributional impacts of some
environmental taxes, but a way to improve the economy while protecting the
environment.
40
Worldwatch Institute, Shifting tax burden to polluters could cut taxes on wages and profits by
15%.
41
Nash, J 2010, Tax shifting and environmental economics, viewed 1 June 2010,
<http://businessvn.net/2010/02/tax-shifting-and-environmental-economics/>.
42
Organisation for Economic Co-operation and Development, 2000, Greening tax mixes in OECD
countries: A preliminary assessment, viewed 1 June 2010,
<http://www.oecd.org/dataoecd/13/38/2385866.pdf>.
43
Franz, D ND, The environmental tax shift, viewed 1 June 2010,
<http://www.progress.org/shift20.htm>.
Keeping in mind the economic effects, the distributional and competitive impacts
and the mitigating actions, a tax needs to be carefully designed if it is to
effectively support environmental policies.
Criteria for assessing environmental taxes
The diagram below shows the suggested criteria for assessing an environmental
tax:
Figure 3: Suggested criteria for assessing environmental tax proposals
44
Environmental effectiveness – Where the tax has a clear environmental
objective, the tax must be targeted to achieve that objective. For this to be the
case there must be a clear link between the environmental issue and the tax.
For example, if the aim of the tax is to reduce carbon emissions, a direct tax on
carbon emissions exceeding a certain level would sufficiently linked to the goal of
reducing carbon emissions for it to be effective. Exemptions should also be kept
to a minimum to avoid creating perverse effects.
44
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
Tax revenue – Some environmentally related taxes have the ability to raise a
large amount of revenue for the fiscus. The level of revenue generated will
depend on how elastic demand is for the product and how price sensitive the
product being taxed is. In most cases a tax will either be designed to raise
revenue or to change consumer behaviour. It is unlikely that it would achieve
both fully.
Support for the tax – The introduction of a new tax will be easier if there is
public support and acceptance of it. This will be discussed in more detail below.
Legislative aspects – It must be decided whether the tax will be an indirect or
direct tax and whether it will be levied in terms of the Income Tax Act or the
Customs and Excise Act.
Technical viability – Technical and administrative issues are probably the most
challenging aspects of environmental tax implementation. The tax base must be
able to be accurately measured and the tax implemented at a relatively low cost.
Competitiveness and distributional impacts - These have been discussed in
detail above.
Adjoining policy areas – This links to tax shifting in that the revenue from the
environmental tax can be used to reduce tax on labour therefore increasing
employment and achieving the governments’ goals of reducing unemployment
and poverty.
In addition to being well designed to meet the objectives and support adjoining
policy areas, the tax must also be accepted by the public if it is to be successful.
This is a critical area and is discussed below.
Support for the tax
Generally taxes are seen as a necessary evil and are not very popular. The
introduction of a new tax or reforms to an existing tax will therefore be much
easier if there is public support for them. This is likely to increase compliance
with the tax as well.
Gaining support is not simple but there are a number of options the government
could consider. One of these is engaging all stakeholders likely to be affected by
the tax.45 Targeted information needs to be provided so that the stakeholders
have a good understanding of the problem being addressed.46 In this way they
can give their input and will feel more involved in the process which is likely to
lead to better relations and increased compliance.
The timing of the implementation is also critical. It is important that the tax is pre
announced so that stakeholders have sufficient time to prepare for the
45
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
46
Organisation for Economic Co-operation and Development, 2006, The political economy of
environmentally related taxes, viewed 12 March 2010,
<http://www.oecd.org/document/20/0,3343,en_2649_34295_36815124_1_1_1_1,00.html>.
implementation and to appropriately adjust their processes. A gradual phasing in
of the tax can also soften the immediate cost impact.
The concept of tax shifting (as discussed above), if implemented, will also
increase acceptance, particularly by the general public and trade unions. In fact,
a survey in the United States and the European Union showed that seventy
percent of the public supported environmental taxes and tax shifting when it was
explained to them.47 A similar way to gain support for an environmental tax is by
earmarking the revenue from that tax. This effectively means that the revenue
from the specific environmental tax will be used to finance a specific
environmental activity or programme.48
Earmarking
The way in which revenue from environmental taxes should be used is an issue
of contention.
Taxpayers who pay these taxes would prefer to see them
earmarked for environmental funds or causes. The government on the other
hand, would prefer to distribute them as part of the normal budgeting process, in
other words, they would simply be amalgamated with all other tax revenue. The
four different ways in which the taxes raised can be used are:
1. Accrue to fiscus and allocated through normal budgetary process;
47
Worldwatch Institute, Shifting tax burden to polluters could cut taxes on wages and profits by
15%.
48
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
2. Accrue to fiscus and then used as part of a tax shifting exercise;
3. Earmarked for spending on specific environmental programmes (known as
hard earmarking);
4. Accrue to the fiscus
and
not
explicitly earmarked for
specific
environmental programmes but budgetary spending on environmental
programmes in general is increased (known as soft earmarking).49
When deciding on which option to choose governments need to consider various
factors. For example, if environmental taxes are to be used as part of a tax
shifting exercise (as discussed above) then they obviously cannot be earmarked.
Furthermore, earmarking can be administratively difficult and the cost involved
will need to be taken into account. The decision on how the revenue from the
environmental taxes is used will ultimately impact the effectiveness of the tax
because it will affect how easily it is accepted by the public.
It is clear that there are many options available for use by the government to gain
support for environmental taxes. If a tax is to be successful, it is crucial that the
government analyses all these options and uses them to gain this support.
Based on all of the above, it is clear that it is not as simple as simply deciding to
impose a tax on some environmentally destructive activity. The impacts of that
tax and mitigating actions that can be taken to reduce the negative impacts must
be considered.
49
With this in mind, the next chapter will discuss the current
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
environmental taxes in South Africa and how these can be improved to better
support the country’s environmental policies.
Chapter 4 – Current environmental taxes
In his 2009 budget speech, then Finance Minister Trevor Manuel, linked the
environment to the economy by noting that, “environmental considerations will
affect the sustainability of economic growth in the long term”.50 This was the first
time that government had committed itself to environmental tax reform and
several environmental tax measures were introduced. Following on from this,
Pravin Gordhan, the current Minister of Finance, proposed a number of
environmental tax measures to be introduced in his 2010 Budget Speech. This
shows the South African government’s commitment to using taxes to protect the
environment.
This chapter will discuss current environmental taxes and
incentives already in place, as well as proposed environmental taxes to be
introduced.
Plastic bag levy
In 2003, a levy on plastic bags of three cents per bag was introduced.51 This is
levied in terms of section 54 of the Customs and Excise Duty Act No 91 of
1964.52 This levy aims to encourage the sustainable use of these bags, which
have a harmful effect on the environment if excessive amounts are manufactured
and dumped. The levy was increased to four cents per bag as from 1 April
2009.53
50
Warburtons Attorneys 2009, ‘South African budget 2009: Environmental fiscal reform and
taxation’, 25 Degrees in Africa, Vol. 4, No. 1, viewed 13 March 2010,
<http://www.25degrees.net/index.php?option=com_zine&view=article&id=257%3Asouth-africabudget-2009-environmental-fiscal-reform-and-taxation&Itemid=58>.
51
South African Revenue Service, 2010, External reference guide to excise duties and levies,
viewed 3 June 2010, <http://www.sars.gov.za/home.asp?pid=54522>.
52
Customs and Excise Duty Act No. 91 of 1964
53
South African Revenue Service, 2010, Environmental fiscal reform, viewed 11 March 2010,
<http://www.sars.gov.za/homeasp?pid=41116>.
The plastic bag levy has led to a noticeable decrease in plastic bag litter;
however, the decrease has not been as much as was expected.54 Furthermore,
when the levy was introduced, the aim was to use the funds to sponsor a national
recycling programme.55 By 2006 just R18 million, of the more than R100 million
collected, had been used to fund such a programme.56 It is clear then that this
levy has not been totally successful. The question then becomes what could be
done to improve this tax?
One of the options is to increase the levy so as to have more of an impact on
changing consumer behaviour. For example, if the levy was increased to twentyfive cents per bag that would mean that consumers would be paying close to fifty
cents for a bag. This would be a lot to pay for a plastic bag and would likely lead
to a massive decrease in the use of these bags as consumers would be hesitant
to purchase the bags. The funds generated from the levy should be earmarked
for the recycling programme and actually used for that purpose. All this would
mean that the levy would be more successful as an environmental tax and would
better achieve its aim of decreasing waste and pollution.
Levy on incandescent light bulbs
54
Gosling, M 2006, ‘Plastic bag levy: money for nothing?’, The Star, 8 November, viewed 3 June
2010,
<http://www.iol.co.za/index.php?set_id=1&click_id=13&art_id=vn20061108014812809C249725>.
55
Finnern, A 2010, ‘Green is the new black, almost’, South African Attorney’s Journal, May 2010,
viewed 10 June 2010,
<http://butterworths.wits.ac.za/nxt/gateway.dll?f=templates$fn=default.htmlvid=mylnb:10.1048/en
u>.
56
Finnern, A, ‘Green is the new black, almost’.
Another environmental levy imposed by Section 54 of the Customs and Excise
Duty Act No 91 of 1964 is the levy on incandescent light bulbs.57 This is imposed
at between one cent and three cents per watt (therefore approximately three rand
per bulb) on incandescent light bulbs.58
These bulbs use five times more
electricity than an energy saving bulb.59 As energy saving bulbs last longer and
use less electricity, they result in lower greenhouse gas emissions. For this
reason the government wants to promote their use.
This levy is more successful than the plastic bag levy as consumers receive a
large saving by buying energy saving bulbs which is likely to motivate them to do
so. Improvements could however still be made by further increasing the tax and
using the funds to embark on campaigns informing the public of the differences in
energy consumption between the two types of bulbs to further encourage
consumers to change their behaviour or to recycle used bulbs.
Motor vehicle ad valorem excise duties
57
Customs and Excise Duty Act No. 91 of 1964.
South African Revenue Service, Environmental fiscal reform.
59
South African Revenue Service, Environmental fiscal reform.
58
In August 2008 cabinet mandated the National Treasury to investigate the
possibility of imposing a tax on carbon dioxide emissions.60 In the 2009 budget
speech an ad valorem tax on new passenger cars was announced.61 An ad
valorem tax is a duty levied as a percentage of value.62 The aim of this tax is to
influence the composition of South Africa’s vehicle fleet to become more energy
efficient and environmentally friendly.63 In the 2010 budget speech this tax was
amended to become a specific tax, as opposed to an ad valorem tax, to be
implemented from 1 September 2010.64 In terms of this tax, new passenger
vehicles will be taxed based on their carbon emissions at R75 per g/kg for each
g/kg above 120 g/kg.65
This tax is in addition to the current ad valorem luxury tax on new vehicles and is
expected to raise R450 million in tax revenue in the 2010/2011 fiscal year.66 The
emissions tax will be extended to commercial vehicles once agreed carbon
dioxide standards are set for these vehicles.67
This tax is a definite step in the right direction for South Africa. The reason that
this tax is different to many of the environmental taxes currently levied is that it
60
Lunshe, S 2008, ‘The battle to take business from brown to green’, The Wits Business School
Journal, October-December, pp 47-48.
61
South African Revenue Service, Budget tax proposals 2008/9.
62
South African Revenue Service, National Budget Review 2010.
63
South African Revenue Service, Budget tax proposals 2008/9.
64
South African Revenue Service, 2010, Budget tax proposals 2010/11, viewed 11 March 2010,
<http://www.treasury.gov.za/documents/national%20budget/2010/guides/Budget%20Proposals%
202010.pdf>.
65
South African Revenue Service, Budget tax proposals 2010/11.
66
South African Revenue Service, National Budget Review 2010.
67
South African Revenue Service, Budget tax proposals 2010/11
aims to promote environmental protection. In other words, it does not meet the
definition simply because its tax base is a vehicle, which is environmentally
harmful; it was actually introduced with environmental reform in mind. The only
issue is that South Africa’s fuel quality is inferior to most developed and
developing countries and for that reason many motor vehicle manufacturers do
not fit up to date emissions reducing technology to cars for sale in the South
African market.68 This means that consumers will be penalised until cleaner fuel
allows modern technology to be introduced.
The government has started
discussions with fuel refiners but it is unlikely that South Africa will get cleaner
fuel until 2013.69
National Fuel Levy
The national fuel levy imposed in terms of Section 54 of the Customs and Excise
Duty Act No 91 of 1964,70 is an example of a tax that meets the definition of an
environmental tax simply because its tax base, fuel, is environmentally harmful.
This tax was introduced primarily with the intention of raising revenue and
currently accounts for over 70% of the revenue collected from environmental
taxes.71 Due to the fact that this tax meets the definition only for the reason set
out above and was not intended to reduce fuel usage or promote energy
efficiency it will not be discussed in great detail. Similarly the Road Accident
68
Hill, M 2009, ‘Time to clean up their act’, Financial Mail, 6 March, pp. 44-45.
Hill, M, ‘Time to clean up their act’.
70
Customs and Excise Duty Act No. 91 of 1964.
71
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
69
Fund Levy meets the definition of an environmental tax but will not be discussed
because it has no effect on environmental reform.
As this fuel tax is already accepted by the public, the administration measures
are already in place and it has the ability to raise large amounts of revenue for
the fiscus it is a key area that government could manipulate to bring about
environmental reform.
If this tax was amended to reflect the environmental
impact of the fuel it could be used as a tool to not only raise revenue but also
protect the environment. For example, the tax could be levied at a lower rate on
diesel than on petrol. It could also be levied at differing rates depending on the
sulphur content of the diesel. Low sulphur diesel which is less damaging to the
environment although more expensive, could attract a lower levy to make it
cheaper and more attractive to consumers. These are areas that should be
explored to make the tax more effective as an environmental tax.
Section 12B - Accelerated depreciation allowance
The Income Tax Act No. 58 1962 provides for a three year 50%, 30%, and 20% accelerated depreciation allowance for investments in renewable energy and biofuels
production.72
The National Treasury has also proposed, in the 2009 budget, that investments
by companies and small businesses energy-efficient equipment should qualify for
72
Bowman Gilfillan, 2009, New laws in the pipe line to decisively respond to the challenge of
climate change, viewed 7 June 2010, < http://www.legal500.com/c/southafrica/developments/8677>.
an additional allowance of up to 15%, on condition that there is documentary
proof of the resulting energy efficiencies.73
This allowance will be a
supplementary depreciation allowance. The resulting energy efficiencies which
will be taken into account for the supplementary depreciation allowance will be
the energy savings for a period of two to three years after the energy-efficient
equipment was installed or used.74 In addition, for a company to qualify for the
allowance, its resulting energy efficiencies will have to be certified by the Energy
Efficiency Agency.75 What this effectively means is that commercial real estate
owners could effectively get a tax write off of 115% of the cost of energy-efficient
equipment.76 No such allowance has, however, been implemented to date.
Such allowances provide an incentive to businesses to invest in energy efficient
equipment. It is likely to be very effective in encouraging such investment as
accelerated depreciation allowances are extremely valuable to businesses from a
tax point of view.
Electricity Levy
73
‘ Warburtons Attorneys, ‘South African budget 2009: Environmental fiscal reform and taxation’.
Bowman Gilfillan, New laws in the pipe line to decisively respond to the challenge of climate
change.
75
Bowman Gilfillan, New laws in the pipe line to decisively respond to the challenge of climate
change.
76
‘Green buildings to get more tax perks’, Moneywebtax, 11 February 2009, viewed 11 March
2010,
<http://www.moneywebtax.co.za/mw/view/mw/en/page30258?oid=270081&sn=2009Detail>.
74
A levy of 2c per kw/h for electricity generated from non-renewable sources was
proposed in the 2008 budget.77 Section 54FA.01 of the Customs and Excise Act
No. 91 of 196478 (the Act) has been implemented with effect from 1 July 2009, to
make provision for this tax. This tax will be collected at the source, from the
generators of electricity.79
This method of collection will lead to a large
administrative burden as all generators of electricity will have to register and
submit accounts to justify the calculation of the levy payable. This may lead to
decreased compliance. It might be better if the tax was levied at consumer level,
as this would be easier to control. The argument that doing so will negatively
impact on consumers is irrelevant because the cost of the levy, even if paid by
the producer, will be passed on to the consumer in any case. A levy of this kind
should encourage consumers to use less electricity and invest in equipment such
as solar geysers and solar panels. If coupled with a rebate on these products (to
be discussed in chapter 5) this levy could be very effective in reducing electricity
consumption from non-renewable sources.
purpose
of
The levy therefore serves a dual
managing electricity shortages
as
well
as
protecting the
environment.80
Electricity generated by plants with a capacity of less than five megawatts,
electricity generated from renewable sources and electricity generated from co77
PricewaterhouseCoopers, 2008, ‘Electricity levy’, Tax Alert, viewed 13 March 2010,
<http://www.pwc.com/en-za/za/assets/pdf/pwc-taxalert-15092008.pdf>.
78
Customs and Excise Act No. 91 of 1964
79
South African Revenue Service, Budget tax proposals 2008/9.
80
PricewaterhouseCoopers, ‘Electricity levy’.
generation (electricity generated from steam, heat or other forms of energy
produced as a by-product from another process) will not be subject to the levy.81
The electricity tax is expected to generate R2,78-billion, according to the 2008
Budget Review.82
Exemption of Certified Emission Reductions (CERs)
The Kyoto Protocol introduced an emission reducing mechanism known as the
Clean Development Mechanism (CDM).83 This mechanism provides for the sale
of Certified Emission Reductions (CERs).84 The mechanism is based on the fact
that greenhouse gases mix equally in the atmosphere, in other words a ton of
greenhouse gases released anywhere in the world will have the same effect on
the global climate, therefore it does not matter in which country emissions
reduction is started.85
Generally reducing carbon emissions in developing
countries is more cost effective than doing so in developed countries.
This
mechanism therefore provides a means by which developing countries (who
have no emission reduction obligations in terms of the Protocol) can invest in
emission reducing projects and then sell their CERs to developed nations to help
them to meet their obligations under the Kyoto Protocol.
This is a win-win
situation for all involved; the companies buying the CERs will benefit by paying
81
PricewaterhouseCoopers, ‘Electricity levy’.
South African Revenue Service, 2008, National Budget Review 2008, viewed 11 March 2010,
<http://www.sars.co.za/home.asp?pid=55413>.
83
Naidoo, P 2009, ‘Carbon credit contention’, Financial Mail, 27 February, pp. 74-75.
84
Arendse, J & Chan W H 2009, ‘Tax relief for reducing carbon emissions’, TAXTalk,
September/October, issue 18, pp. 6-7.
85
Arendse, J & Chan W H, ‘Tax relief for reducing carbon emissions’.
82
less then they would in penalties for exceeding emission limits and companies
selling the CERs can recoup some of the cost of investing in the emission
reducing projects.86 This is illustrated by the diagram below:
Figure 4: Logic to the existence of the Kyoto Protocol and CERs
87
In order to incentivise South African companies to invest in these CDM projects,
section 12K was inserted into the Income Tax Act.88 This section provides an
exemption in respect of the disposal of any CER derived by any person in terms
of a CDM carried out by that person.89 This means that the initial sale of any
CER will be exempt from income tax and capital gains tax. It will also attract VAT
at a rate of zero percent as it is the supply of an exported service.90
These provisions make the investment in a CDM more attractive, from a tax point
of view, to companies in South Africa.
However, investing in a CDM is a
cumbersome and expensive process. For that reason, South Africa only has
fifteen registered CDM projects and only four of those have been awarded
86
Luiz, J & Muller, E 2008, ‘Opportunities under Kyoto Protocol’, The Wits Business School
Journal, October-December, pp. 62-63.
87
Luiz, J & Muller, E, ‘Opportunities under Kyoto Protocol’.
88
Arendse, J & Chan W H, ‘Tax relief for reducing carbon emissions’.
89
Wilson, I 2009, ‘South Africa shows up well on environmental issues’, Synopsis Tax Today,
Nov/Dec, p. 2.
90
Explanatory Memorandum to the Taxation Laws Amendment Bill 2009.
CERs.91 It is therefore unlikely that this section of the Income Tax Act will have
any major effect on climate change and global warming in South Africa.
Energy Efficiency Allowance
The 2009 budget speech proposed an environmental incentive in the form of a
notional deduction for businesses for energy efficiency savings.92 This deduction
is allowed in terms of section 12L of the Income Tax Act. This section will come
into effect on a date to be determined by the Minister of Finance by notice in the
Government Gazette.93
Taxpayers who wish to obtain such a deduction will need to obtain an energy
certificate from the South African National Energy Development Institute.94 The
taxpayer will then be allowed a deduction of 50% of the energy efficiency saving,
multiplied by a rate determined by the Minister of Energy.95
While this allowance is an incentive for businesses to become energy efficient,
there are several problems with it. The main problem is that the allowance is
only available until 31 December 2012.96 This will discourage businesses from
91
Arendse, J & Chan W H, ‘Tax relief for reducing carbon emissions’.
South African Revenue Service, 2009, Budget tax proposals 2009/10, viewed 11 March 2010,
<http://www.treasury.gov.za/documents/national%20budget/2009guides/Budget%20Proposals%
202009pdf>.
93
South African Revenue Service, Budget tax proposals 2009/10>.
94
Rego, N, ‘Green taxes may be ineffective’.
95
Rego, N, ‘Green taxes may be ineffective’.
96
Rego, N, ‘Green taxes may be ineffective’.
92
making investments in technology to achieve these energy savings, as by 2012 it
is unlikely that the cost of such technology will have been recouped by the tax
saving from the allowance. The administrative burden of having to obtain the
certificate may also discourage businesses from investing in such technology.
This tax could be improved by reducing the administrative burden, extending the
period for which the allowance is available and increasing the value of the
allowance to businesses by allowing for a larger deduction.
Proposed environmental taxes
In the Budget 2010/11 further reference was made to environmental taxes and a
broad statement was made that "further research is being done to expand
environmental taxes and levies".97
The following environmental taxes and
charges will also be investigated:
A waste water discharge levy.
Pollution charges.
Levies on the waste streams of various products.
A landfill tax at municipal level.
Traffic congestion charges.98
This
is indicative of
the South African
government’s
commitment to
environmental fiscal reform. Chapter 5 will expand on Chapter 4 by discussing
97
Sustainability South Africa, 2010, Green taxes, viewed 7 June 2010,
<http://www.sustainabilitysa.org/saenvironmentaltaxes.aspx>.
98
South African Revenue Service, National Budget Review 2010.
what further environmental taxes could be introduced in South Africa, in addition
to the improvements to be made to existing environmental taxes discussed in this
chapter, to further reinforce environmental policies.
Chapter 5 – Suggestions for further taxes
Incentives for individual taxpayers
One of the major areas in which South African tax laws could be improved to
better support environmental policies is the incentives available to individual
taxpayers. As it stands, there are no tax incentives for individuals to be energy
efficient.
Environmental taxes that could be introduced include rebates for
installing energy efficient appliances such as solar geysers or gas stoves.
Eskom currently offers a cash-back rebate to consumers who install solar
geysers but this is not a tax incentive and is unrelated to fiscal policy in South
Africa. Offering a tax incentive in addition to this rebate would further enhance
the desirability of a solar geyser and encourage even more consumers to install
the device. The Eskom rebate has also been criticised for being too restrictive so
a tax incentive could be used to counter this. Alternatively individuals could be
allowed to write off the cost of these appliances over a specified number of years
and deduct this allowance in the determination of taxable income.
Individuals could also receive rebates based on the quantity of waste recycled.
By rewarding efficient use of our natural resources the government would ensure
that these taxes do not disproportionately burden the poor.
Introducing the measures discussed above would go a long way towards
encouraging individuals to become more efficient in their use of natural
resources.
Incentives may be preferred by taxpayers as compared to tax
charges and incentive based taxes would therefore, be more likely to be
supported by the public.
Water
South Africa is a water-scarce country and one of its key environmental issues
relates to the availability of water.99 Taxing water by means of a levy would
increase the price of water and therefore suppress the demand for water. In
Denmark, taxes on water consumption are used as part of a tax shifting exercise
and in the five years between 1994 and 1995 it is estimated to have induced
water savings of 13% in the domestic sector.100
Obviously the distributional impact would have to be considered to ensure that
such a levy will not disproportionately burden the poor. One of the options
available is to tax individuals on water used in excess of a predetermined
99
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
100
National Treasury, A framework for considering market-based instruments to support
environmental fiscal reform in South Africa.
amount, not on all water used. This will ensure that the tax will not impact on the
poor, who are likely to use less than the predetermined amount of water.
Waste
A similar principle as was described above could apply in respect of waste
generation.
Taxpayers could be taxed on waste generated in excess of a
predetermined amount.
Again, by only taxing generation in excess of a
predetermined amount the government will ensure that such a tax does not
negatively impact on the poor. Such a tax would not only encourage taxpayers
to generate less waste but also to recycle. Coupled with the recycling incentive
discussed above this would have a very positive impact on waste generation in
South Africa.
This tax could either be used a part of a tax shifting exercise (as discussed in
chapter 3) or the proceeds could be earmarked for a national recycling campaign
which would further encourage recycling.
Electricity
The generation of electricity in South Africa results in significant environmental
damage. Eskom relies on coal fired power stations to produce approximately
90% of its electricity which causes severe air pollution.101 The government could
introduce an electricity consumption tax which, like the water tax, would increase
the price of electricity and therefore decrease demand for it. Again, to reduce the
distribution impact, this tax should only be levied on excessive electricity use.
Earmarking
In addition to the specific measures discussed above, the South African
government should also consider using environmental funds to address
environmental issues. These could be funded using the tax revenue generated
from the environmental taxes.
Not only would this further reinforce the
environmental policies of the country, but it would also lead to increased public
support for the taxes as taxpayers could see their money being put to good use.
However, in most countries only a small percentage of revenue is earmarked for
such use. The majority of the revenue is simply added to general tax revenue
and used to run the country or used as part of a tax shifting exercise (see chapter
3).
101
Eskom, ND, Eskom, viewed, 12 June 2010,
<http://www.eskom.co.za/live/content.php?Category_ID=96>.
Chapter 6: Conclusion
Based on the preceding discussion, it is clear that environmental taxes have
become hugely important in today’s economic environment. Not only are they
being increasingly used around the world as a means of bringing about
environmental reform, but they are also gaining importance in South Africa as a
tool to support environmental policies.
South Africa’s strong economic growth has lead to considerable environmental
degradation. This will impact on the country’s ability to grow if the degradation is
not halted and, to some extent, reversed. With this in mind, the South African
government has committed itself to ensuring that growth and development in
South Africa will be sustainable and that its environment will support this
sustainable economic growth.
Several environmental policies are already in
place and others are due to be introduced to ensure this goal is achieved; these
were discussed in detail in Chapter 2. This report has shown that environmental
taxes have a crucial role to play in supporting these policies.
In terms of economics, people tend to be most affected by something when they
have to pay for it. As was discussed in chapter 3, the costs and benefits to the
environment are not usually reflected in the prices of goods and services in the
market, and markets therefore, cannot be relied on to efficiently allocate these
resources. For that reason government intervention is necessary.
This
intervention may take the form of environmental taxes, which can be used to
bring about environmental reform. Current environmental legislation (discussed
in chapter 2) has not been effective in protecting South Africa’s environment. By
introducing more extensive environmental taxes the South African government
could more effectively and economically protect South Africa’s environment.
South Africa does have some environmental taxes in place at present (discussed
in chapter 4). However, many of these meet the definition of an environmental
tax simply because their tax base is an environmentally harmful good. They
were never intended to protect the environment; they were implemented simply
to raise revenue for the fiscus. There is therefore, much room for improvement in
terms of making these taxes more effective at protecting the environment and
also to introduce new taxes that are designed to protect the environment.
In conclusion, the South African government needs to take action if it wants
South Africa to enjoy sustainable economic growth. One of the steps it can take
is to reform current environmental taxes and introduce new environmental taxes
that will support its policy of sustainability.
This report has shown that
environmental taxes can support the government’s environmental policies and
are one of the most economical and effective ways to bring about environmental
reform which is essential for sustainable growth.
References
Books
Bakker, A 2009, Tax and the environment: A world of possibilities, IBFD,
Amsterdam.
Articles
Naidoo, P 2009, ‘Carbon credit contention’, Financial Mail, 27 February.
Hill, M 2009, ‘Time to clean up their act’, Financial Mail, 6 March.
Wilson, I 2009, ‘South Africa shows up well on environmental issues’, Synopsis
Tax Today, Nov/Dec.
Internet sources
‘SA ‘far’ off from going green’, Fin 24, 26 June 2008, viewed 11 March 2010,
<http://www.fin24.com/articles/default/display_print_article.aspx?ArticleId=23474
09>.
‘Environmental conservation and maintenance’, Integritax Newsletter, March
2009, viewed 11 March 2010, <http://www.saica.co.za/integritax/>.
‘Electricity levy to be introduced’, PricewaterhouseCoopers, 17 September 2008,
viewed 11 March 2010,
<http://moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page359?oid=2
682>.
‘Electricity levy’, Tax Alert, 15 September 2008, viewed 13 March 2010,
<http://www.pwc.com/en-za/za/assets/pdf/pwc-taxalert-15092008.pdf>.
‘Green taxes may be ineffective’, Fin24, 10 June 2009, viewed 11 March,
<http://www.fin24.com/articles/default/display_print_article.aspx?ArticleId=25282
15>.
‘Environmental fiscal reform’, SARS, viewed 11 March 2010,
<http://www.sars.gov.za/homeasp?pid=41116>.
‘South African budget 2009: Environmental fiscal reform and taxation’, 25
Degrees in Africa, March 2009, viewed 13 March 2010,
<http://www.25degrees.net/index.php?option=com_zine&view=article&id=257%3
Asouth-africa-budget-2009-environmental-fiscal-reform-andtaxation&Itemid=58>.
‘Environmental reform: Carbon tax on new cars is just the start’, Business Day,
18 February 2010, viewed 11 March 2010,
<http://www.businessday.co.za/Articles/Content.asps?id=94122>.
‘Green buildings to get more tax perks’, Moneywebtax, 11 February 2009, viewed
11 March 2010,
<http://www.moneywebtax.co.za/mw/view/mw/en/page30258?oid=270081&sn=2
009Detail>.
‘Eskom’s climate change commitment’, Climate change and sustainability
department, viewed 17 April 2010,
<http://www.eskom.co.za/content/G10004_6_POINT_PLAN~2.pdf>.
‘Green taxes for South Africa’, 17 June 2009, viewed 11 March 2010,
<http://www.buyenvironment.co.za/indexz.php?option=com_content&do_pdf=1&id=108>.
‘Appetite for change survey’, PricewaterhouseCoopers, 2010, viewed 11 March
2010, <http://www.pwc.com/gx/en/appetite-for-change/assets/appetite-forchange.pdf>.
‘Sustainability and climate change’, PricewaterhouseCoopers, 2010, viewed 11
March 2010, < http://www.pwc.com/gx/en/tax/sustainability-climatechange/sustainability-climate-change.jhtml>.
‘South Africa’s path towards an environmental fiscal reform’, Morden, C &
Hemraj, S 2007, viewed 11 March 2010,
<http://www.worldecotax.org/downloads/Presentations/MordenCecilHemrajSharli
nSouthAfrica.pdf>.
Journals
Lunshe, S 2008, ‘The battle to take business from brown to green’, The Wits
Business School Journal, October-December, pp 47-48.
Luiz, J & Muller, E 2008, ‘Opportunities under Kyoto Protocol’, The Wits Business
School Journal, October-December, pp. 62-63.
Cohen, T 2008, ‘The business of greening’, The Wits Business School Journal,
October-December, pp. 59-60.
Arendse, J & Chan WH 2009, ‘Tax relief for reducing carbon emissions’,
TAXTalk, September/October, issue 18, pp. 6-7.
Government and other organisational publications
Department of Environmental Affairs and Tourism South Africa, 1999, State of
the environment South Africa 1999.
OECD, 2008, An OECD framework for effective and efficient environmental
policies.
National Treasury, April 2006, A framework for considering market-based
instruments to support environmental fiscal reform in South Africa.
7th interim report of the commission of enquiry into certain aspects of the tax
structure of South Africa, July 1998, p.9, viewed 11 March 2010,
<http://www.treasury.gov.za/publications/other/katz/7.pdf#12>.
OECD, Taxation and Environmental Policies, September 2001, viewed 12 March
2010,
<http://www.oecd.org/document/35/0,3343,en_2649_34533_1907427_1_1_1_1,
00.html>.
OECD, The political economy of environmentally related taxes, June 2006,
viewed 12 March 2010,
<http://www.oecd.org/document/20/0,3343,en_2649_34295_36815124_1_1_1_1
,00.html>.
OECD, Environmentally related taxes: Issues and strategies, November 2001,
viewed 12 March 2010, <http://www.oecd.org/dataoecd/39/18/2674642.pdf>.
South African Revenue Service, National Budget Review 2010, February 2010,
viewed 11 March 2010, <http://www.sars.co.za/home.asp?pid=55412>.
South African Revenue Service, Budget tax proposals 2008/9, February 2008,
viewed 11 March 2010,
<http://www.treasury.gov.za/documents/national%20budget/2008/guides/Budget
%20Proposals%202008.pdf>.
South African Revenue Service, Budget tax proposals 2007/8, February 2007,
viewed 11 March 2010, <
<http://www.treasury.gov.za/documents/national%20budget/2007/sars/Budget%2
0Proposals%202007.pdf>.