South Africa Focuses on Environmental Fiscal Reform to Tackle Growing Environmental Challenges
One critical tool discussed by Hemraj for addressing these challenges is environmental fiscal reform (EFR).
Cape Town, South Africa - In a comprehensive presentation delivered at the ATAF Annual Meeting, Sharlin Hemraj, Director of the Environmental and Fuel Taxes Directorate at the National Treasury of South Africa, emphasised the pressing need to address the numerous environmental challenges that the country faces, writes Winston Mwale.
As South Africa's economy continues to grow, challenges including greenhouse gas emissions, air pollution, land degradation, biodiversity loss, and water quality deterioration have become more pronounced, demanding immediate attention and proactive measures.
One critical tool discussed by Hemraj for addressing these challenges is environmental fiscal reform (EFR).
This approach aims to merge environmental and fiscal policies to develop new tax instruments and reform existing ones to meet environmental objectives.
Market-based instruments (MBIs) hold a prominent place within this reform, allowing market forces to internalize externalities by influencing relative prices, making them more attractive to consumers and firms.
The cornerstone of South Africa's approach is the Environmental Fiscal Reform Policy Paper published in 2006.
This policy framework underlines the importance of key taxation principles, including efficiency, equity, simplicity, transparency, and tax buoyancy.
Hemraj highlighted the necessity of government intervention to rectify market failures in environmental contexts, including addressing negative externalities, promoting research and development, and mitigating information disparities, all while encouraging innovation in green technologies.
Crucially, the design of environmental taxes must consider various factors, such as their effectiveness, tax rates, revenue utilization, public support, legal and administrative feasibility, competitive impacts, and distributional effects.
Hemraj mentioned tax shifting as a valuable strategy, taxing polluting activities while reducing taxes on labour income to encourage more eco-friendly practices.
The revenue generated from environmental taxes can be used in various ways, including contributing to the general budget, funding specific environmental initiatives, or increasing spending on environmental protection.
Hemraj also delved into the "double-dividend hypothesis," suggesting that South Africa could see improvements in both environmental quality and economic efficiency and employment through the implementation of environmentally related taxes.
South Africa has already instituted various environmentally related taxes, encompassing fuel taxes, plastic bag levies, electricity generation levies, and carbon taxes, which target specific environmental concerns and encourage sustainability.
In the fiscal year 2022/23, environmental taxes collected in South Africa amounted to R93.8 billion, with fuel levies contributing roughly 87%, followed by electricity levies at 10%, and vehicle emissions taxes at 2%.
Hemraj spotlighted the administration of the carbon tax, a collaborative effort between the South African Revenue Service (SARS) and the Department of Forestry, Fisheries, and the Environment (DFFE). SARS manages the carbon tax's implementation, while the DFFE oversees the South African Greenhouse Gas Emissions Reporting System (SAGERS), providing data for carbon tax declarations.
Furthermore, the presentation emphasized the importance of carbon offsetting in various sectors such as fertilizers, energy, manufacturing, metal production, and waste-to-energy projects, which are eligible for carbon offset projects, contributing to significant growth in South Africa's carbon offset initiatives.
The impact of the carbon tax on South Africa's economy is substantial, with revenues projected to reach R1.7 billion in 2023/24.
The Minister of Finance has the authority to adjust rates every three years based on multiple factors.
In conclusion, Hemraj's presentation highlighted South Africa's commitment to tackling environmental challenges through the implementation of environmentally related taxes and market-based instruments.
These initiatives seek to incentivize sustainable practices, protect vulnerable households, and contribute to a low-carbon, socially inclusive, and resilient economy.
By leveraging the carbon tax and the nation's first national Green Finance Taxonomy, South Africa aims to create an economic environment that fosters sustainable development while balancing economic growth and environmental protection.