A carbon tax on fuel of 9c/l on petrol and 10c/l on diesel will become effective from June 5, Finance Minister Tito Mboweni said on Wednesday.

Further, the general fuel levy will increase by 15c/l for petrol and diesel from April 3, while the Road Accident Fund (RAF) levy will be increased by 5c/l, also from April 3.

The RAF levy increase is not enough to match the fund’s R215-billion liability, the Minister said on Wednesday as he urged the Department of Transport to “resubmit the Road Accident Benefit Scheme Bill for Parliament’s urgent consideration”.

This should help stabilise fuel prices once done, he added.

In total, fuel levies will increase by 29c/l for petrol and 30c/l for diesel during 2019/20.

South Africa has three main fuel taxes that apply to petrol, diesel and biodiesel, which comprise the general fuel levy, the customs and excise levy, as well as the RAF levy.

These levies fund general government expenditure, support environmental goals and finance the RAF.

With South Africa’s commitment to tackling climate change, the Carbon Tax Bill will be implemented from June 1.

The tax will also assist in reducing emissions and ensure that South Africa meets its commitments under the 2015 Paris Climate Agreement.

According to the Minister, the tax will be reviewed after three years, with the South African Revenue Services (Sars) and the Department of Environmental Affairs jointly administering the tax.

To ensure a smooth administration, Sars will publish draft rules for consultation by March, which will complement three sets of regulations; namely draft regulations on the Carbon Offsets, published in 2016; trade exposure regulations, which will be published before the end of this month; and benchmarking regulations, which will be published in March for further consultation.

A consultation workshop will be held in March to finalise the Carbon Offsets regulations.

After the introduction of the carbon tax, emission-reduction credits could be used to reduce carbon tax liabilities. To avoid a double-benefit scenario, where the same emission reduction leads to both an income tax exemption and reduced carbon tax liabilities, the tax exemption will be repealed from June 1. 

Additionally, the energy-efficiency savings tax incentive, which was introduced in November 2013, will be used to offset the tax burden on industry from the introduction of the carbon tax.

The incentive, which expires on December 31, provides companies with a tax deduction for energy-efficient investments, while also contributing to environmental goals and reducing energy costs.

To encourage additional investment in energy efficiency, government has proposed extending the incentive to December 31, 2022.

Government will throughout this year review the design and administration of the incentive to improve its ease of use, effectiveness and economic impact.

The incentive gives effect to the polluter-pays principle, prices greenhouse-gas emissions and aims to ensure that businesses and households take these costs into account in their production, consumption and investment decisions.

Further, owing to the fiscal prudence requiring some tax changes, Mboweni noted that additional revenue measures were expected to amount to about R15-billion in 2019/20.

Considering that the South African economy’s performance continues to weigh heavily on tax revenues, further tax changes are proposed to raise an additional R10-billion in 2020/21, the details of which will be set out in the 2020 Budget.

In the interim, main tax proposal for 2019/20 comprise not just the higher fuel levy and the carbon tax, but also an increase in excise duties on alcohol and tobacco products between 7.4% and 9%, as well as an increase in the eligible income bands for the employment tax incentive.