Airlines plead for exemption from carbon tax

The airline industry made a strong plea in parliament on Tuesday to be exempted from the proposed carbon tax saying it will undermine its competitiveness.

The tax only applies to economic activities which emit greenhouse gases within South Africa and will therefore not apply to international airlines.

The carbon tax, which is due to take effect from June this year, is provided for in the Carbon Tax Bill which has been adopted by the National Assembly and is now being processed by the National Council of Provinces’ select committee on finance.  The committee held public hearings on the bill on Tuesday.

Airlines Association of Southern Africa chief executive Chris Zweigenthal argued that the failure to exempt domestic flights from the tax would undermine competitiveness of domestic airlines, reduce the return on investment for taxpayers from state-owned airlines SA Airways and SA Express and reduce the return on investment for local private sector airlines.

He argued that a carbon tax on the airline industry would curtail investment in new technology and cleaner equipment and have a limited impact if any, on the environment.

Zweigenthal said there should not be regulatory fragmentation between the South African and international regimes as this would increase the administrative burden for operators and governments and result in potential market distortions.

“IATA [the International Air Transport Association] is concerned that if domestic and international flights are subject to different regimes this will add to the administrative complexity and regulatory burden for airlines operating in SA. The safe, orderly and efficient functioning of today’s air transport system relies on a high degree of uniformity in regulations, standards and procedures,” Zweigenthal said.

“In principle aviation does not support carbon taxes. We believe that in a world where aviation is such an active facilitator of travel, communication and bringing people together, the introduction of carbon taxes is intended to discourage and effectively shrink air transport,” Zweigenthal concluded.

The Association of Cementitious Material Producers executive director Dhiraj Rama expressed grave concern  about the consequences of implementation of the bill in the current economic climate. He said it would pose a “significant challenge” to the cement business as it would result in a higher cost of doing business and therefore higher prices.

A price escalation of more than 2,6% is expected widening the gap between imported and locally produced product, he said.

Sasol vice president of regulatory services Johan Thise expressed concern about regulatory uncertainty and asked for a postponement of the promulgation of the carbon tax until this had had been sorted out. Industry had had no sight of the regulations which would determine how the bill would be implemented.

Opposition to the carbon tax was also expressed by Business Unity SA, the South African Iron and Steel Institute, Black First Land First, Sibanye Stillwater, Arcelor Mittal, the Chemical & Allied Industries Association, and the Organisation Undoing Tax Abuse.

Under the bill’s tax regime, a number of tax-free allowances will apply during the first phase of the carbon tax and will be capped at 95%. An initial headline tax rate of R120 per ton carbon dioxide equivalent (CO2e) and various tax-free allowances will thus result in an effective tax rate that will vary between R6 and R48 per ton of CO2e.

The process of preparing the bill dates back to 2010 when the carbon tax discussion paper was published. This was followed in 2013 by the carbon tax policy paper, the 2014 carbon offsets paper, the 2015 carbon tax bill and the 2016 draft regulation on carbon offsets. 

Treasury has projected tax income of R1,8bn in 2019/20 from the carbon tax on fuel.

ensorl@businesslive.co.za