Catalyst Global

2025 Budget Speech and Anticipated Carbon Tax Developments

It has been rescheduled to tomorrow (Wednesday, 12 March).

A key point of anticipation is the announcement regarding Phase 2 of the Carbon Tax. The budget presentation is expected to address this, along with the subsequent release of draft Phase 2 Carbon Tax legislation for public comment later in 2025. The final legislation is anticipated to be enacted by the end of this year, effective 1 January 2026.

The stakeholder consultation for National Treasury’s Phase 2 of the Carbon Tax discussion paper (”the discussion paper”) took place on 16 January 2025, and received significant stakeholder participation. Many stakeholders voiced their opinions on the discussion paper. We are hopeful that National Treasury has considered these responses, and we are eager to see if National Treasury will make the following potential announcements in tomorrow’s budget:

• Extension of Section 12L: Continued incentives for taxpayers investing in energy efficiency.
• Basic Tax-Free Allowance: Possible extension for existing basic allowances to remain in place for the medium term, contrary to the reductions by 10% in 2026, and by 2.5% per year thereafter from 2027 to 2030 as proposed in the discussion paper.
• Carbon Budget Allowance: An extension to the voluntary carbon budget allowance until 31 December 2025 after which the allowance will fall away.
• Carbon Offset Allowance: An increase in the carbon offsets allowance as an additional incentive to support carbon offset projects, with the voluntary carbon budget allowance of 5% falling away after 2025.
• Trade Exposure Allowance: Maintaining the qualifying trade intensity at 30% to qualify for the full trade exposure allowance, rather than to increase to 50% as proposed in the discussion paper.
• Utilisation Period for Carbon Offsets: An extension to the utilisation period for carbon offsets generated from projects approved before the introduction of the carbon tax until 31 December 2028.

We will provide a detailed overview of the Carbon Tax proposals following tomorrow’s rescheduled Budget Speech.

Please stay tuned for our follow-up communication, as we’re committed to keeping you informed with the most relevant updates.

Draft Carbon Budget & Mitigation Plan Regulations Published for Public Comment

These draft regulations, published under the Climate Change Act (22 of 2024), are a significant development for businesses, emphasising the need for compliance and strategic planning in the transition to a low-carbon economy.

What You Need to Know

• Mandatory Carbon Budgets: Entities emitting over 30,000 tCO2e annually must submit GHG information for each facility to the DFFE and will receive carbon budget allocations for 5-year cycles.
• Mitigation Plans Required: Organisations will also have to submit detailed mitigation plans with its carbon budget submission. These should cover emission profiles, planned actions, and a clear monitoring and implementation framework. Mitigation Plans will have to be updated every five years.
• Technical Guidelines: Draft technical guidelines are also published, offering guidance on preparing and reporting carbon budgets and mitigation plans, including methodologies and compliance steps.
• Sectoral Application: The regulations are applicable to the below Activities:
  Coal mining, production and/or refining of crude oil, production and/or processing of natural gas, production of synthetic fuels from coal or gas, cement production, glass production, ammonia production, nitric acid production, carbon black production, iron and steel production, ferro-alloys production, aluminium production (excluding foundries), polymers production, pulp and paper production, titanium production, electricity production from fossil fuels (excluding the use of backup generators), petroleum refining, chemical production, hydrogen production, sugar production, lead production, zinc production, charcoal and biochar production, lime production, ceramics production, brick production, domestic aviation, food and beverage productions (excluding sugar production) and mining.
• Proposed Reporting & Verification Requirements: Annual progress reports due for submission to the DFFE in March annually, are mandatory, and will provide information on the comparison of actual GHG emissions to the set carbon budget. Additionally, each commitment period (five-year period) will require three rounds of independent verification.

Your Feedback is Crucial

• The draft regulations are open for comment until 29 September 2025. Stakeholders are encouraged to review and have their say before the deadline.
• After the public comment period, the Department will revise the regulations and submit them for final approval by the Minister.

Why This Matters

If your business is involved in the Listed Activities, these regulations could significantly impact your reporting and strategic decision-making. It is essential to engage and provide feedback to ensure the Department considers the specific implications for both your industry and business, prior to publishing the final regulations.

How We Can Help

Should you need guidance interpreting the draft regulations or preparing a response, please feel free to reach out to Rumbi from Catalyst Solutions on rumbidzaim@catalystsolutions.global or 065 875 6217

2025 Draft Taxation Laws Amendment Bill – Carbon Tax and Incentives Update

Commentary is due by close of business on 12 September 2025. The draft TLAB proposes various changes to the Carbon Tax and some changes to Tax Incentives. As your trusted partner, we’ve compiled a summary of the key proposals to help you navigate proposed developments.

Carbon Tax:

• Mandatory Carbon Budgets Introduced: While the voluntary carbon budget system allowance has been extended until 31 December 2025, mandatory carbon budgets assigned by the Department of Forestry, Fisheries and the Environment (DFFE) will come into effect. A carbon tax rate of R640/tCO2e will apply to greenhouse gas emissions that exceed the assigned carbon budget. The effective date is yet to be gazetted.Although the carbon budget is approved by the DFFE for a five year period, the draft suggests that exceeding the annualised budget in any tax year will trigger a higher tax for that year, aligning with the carbon tax period. This proposed approach aims to smooth tax payments and avoid a large lump-sum payment at the end of five years. This could result in penalising taxpayers who exceed annual carbon budgets in some years but remain within their total five-year allocation. Currently, the draft TLAB does not to accommodate taxpayers incurring additional annual carbon tax at the higer rate, whilst remaining below the approved carbon budget at the end of the five-year period.
• No Carbon Tax Allowances Above Budget: In the draft explanatory memorandum, National Treasury proposes an amendment to Section 14, specifying that no tax-free allowances will apply to emissions exceeding the approved carbon budget. However, the proposed addition under Section 14A of the TLAB states: “14A. Where emissions are above the carbon budget as approved by the Department of Forestry, Fisheries and the Environment, no allowances contemplated in Part II in respect of a tax period will apply.” The current draft wording of Section 14A could be interpreted to mean that no allowances under Part II of the Carbon Tax Act will apply for the relevant Carbon Tax Account submission to SARS on all emissions for that tax period if the taxpayer exceeds the approved carbon budget. It is recommended that this ambiguity be addressed and clarified in the commentary to be submitted to National Treasury in response to the draft TLAB, clearly specifying that allowances will still apply for emissions not exceeding the approved carbon budget. The effective date is yet to be gazetted.
• Electricity Price Neutrality: The commitment to electricity price neutrality is extended to 31 December 2030, shielding consumers from higher costs. The electricity generation levy has been removed, and from 1 January 2026, the carbon tax will apply to emissions from electricity generation. Electricity generators will continue to be able to deduct part of the renewable energy premium from their carbon tax liability.
• Carbon Offset Allowance Increase: Effective 1 January 2026, the carbon offset allowance will increase by 5 percentage points:
  • Up to 10% for most fugitive and process emissions; and
  • Up to 15% for combustion emissions.
• Basic Tax-Free Allowance Maintained: In line with the documentation published in the budget earlier in 2025, the allowance will be maintained until 31 December 2030, with reductions considered from 1 January 2031.
• Emission Factor Updates: Effective from 1 January 2026, Schedule 1 of the Carbon Tax Act (2019) has updated emission factors for:
  • Methane-rich gas (MRG);
  • Natural gas;
  • Other bituminous coal (the calorific value will increase to 0.02651 TJ/tonne); and
  • Sub-bituminous coal.
• Fugitive Emissions Clause Expanded: Section 4(2)(b) of the Carbon Tax Act has been amended to include solid fuel transformation activities and is deemed to have come into operation on 1 January 2024.
• Sequestration Deduction Extended: From 1 January 2026, the sequestration deduction for the paper and pulp sector will be extended to include third-party timber. This is in response to a methodology approved by the DFFE in September 2024 for accurately measuring and reporting on carbon stored in plantations. Some of the important conditions for third party growers to qualify include – registration under the national greenhouse gas reporting program, third party verification, registration with the DFFE and assistance to be provided to smaller growers.

Tax Incentives:

• Section 12L Energy Efficiency Tax Incentive Extended: The energy-efficiency tax incentive (Section 12L) has been extended until 31 December 2030.
• S11D R&D Tax Incentive:
  • Proposed Refinement to R&D Incentive Wording
    The Draft TLAB proposes a minor technical change to Section 11D by removing the redundant phrase “carried on by that taxpayer” from subsection (4)(b). According to the explanatory memorandum, this is purely a technical correction — the requirement that the R&D activities are undertaken by the taxpayer is already clear in the existing wording.
  • Reinstatement of Assessment Mechanisms for R&D Deductions
    The draft Tax Administration Laws Amendment Bill seeks to reinstate administrative provisions under Section 11D that were unintentionally overridden. It clarifies that SARS can issue additional or reduced assessments if R&D project approval is withdrawn or granted after filing. These changes restore the original intent of the incentive’s administration without introducing new rules.

If you need assistance with submitting a response by the deadline of 12 September 2025, or to discuss how these updates may impact your business, please contact us.

Christo Engelbrecht:
christo@catalystsolutions.global
+27 84 513 8177

Reset, Refocus, Rethink: The Evolving R&D Tax Landscape in South Africa

There’s never been a better moment for South African businesses to pause, reset, and take stock of their R&D tax strategy.

At Catalyst Solutions, we’ve been navigating the revised definitions and updated processes for some time now. Our view? The incentive is maturing – and with the right advice, it’s more accessible and impactful than ever.

Clarity in the Section 11D R&D Tax Incentive Process

South Africa’s R&D Tax Incentive is notoriously technical, and the approval process can be daunting. But as the largest submitter of R&D applications in the country, we’ve helped businesses across all sectors engage with the incentive effectively and with confidence.

Despite its complexity, the scheme remains a powerful tool for unlocking innovation funding – especially in a market where cash efficiency and competitiveness are critical.

Why Now is the Best Time to Reassess Your R&D Tax Incentive Strategy

With the incentive now guaranteed until 2033, businesses have a rare opportunity for long-term planning. We believe now is the time to:

• Revisit your existing R&D approach,
• Align internal systems with current DSTI expectations,
• Clarify project eligibility under the updated guidelines.

Whether you’ve claimed in the past or are new to the process, the incentive is worth revisiting under today’s more stable and transparent framework.

Collaboration for Improvement

Catalyst Solutions is actively engaged with the Department of Science, Technology and Innovation (DSTI) to help refine and improve the incentive – ensuring it becomes more effective and more accessible for all innovative companies in South Africa.

Our experience gives us insight not just into what works, but where common challenges lie – and how to overcome them.

Don’t Let Complexity Be a Barrier

We still see companies holding back, often unsure if their work qualifies or reluctant to engage with the perceived red tape. But with the right support, this can be a smooth and rewarding process.

Our team is here to bring clarity, rigour, and confidence to your R&D tax journey – ensuring your innovation gets the recognition and reward it deserves.

Rethinking your R&D approach?

Let’s talk about how Catalyst Solutions can help you make the most of South Africa’s extended R&D tax incentive.

New Jobs Fund Open Call For Proposal: Barriers to Employment in the Green and Informal Economies

What is the Jobs Fund?

The Jobs Fund, established in 2011, is a pioneering challenge fund that provides grant-based co-financing to projects with the potential to drive sustainable job creation in South Africa. By partnering with public, private, and not-for-profit intermediaries, the Fund supports innovative initiatives that address employment barriers, promote inclusive economic growth, and create long-term livelihood opportunities across sectors.

New Open Call

The Jobs Fund has now opened its 12th Call for Proposals under the theme “Breaking Barriers to Employment in the Green and Informal Economies.” This round seeks proposals from experienced sector intermediaries proposing innovative, high-impact projects in the green and informal economies. Applications opened on 22 April 2025 and will close on 5 June 2025 at 15:00. The full Term Sheet, including eligibility and appraisal criteria, is available on the Jobs Fund website at www.jobsfund.org.za.

Application Requirements

Applicants must demonstrate how their proposed interventions will address specific labour market barriers such as limited skills, financing gaps, and regulatory obstacles and ensure job sustainability beyond the grant period. Applicants are required to provide matched funding through private contributions, revenue generation, or co-financing. Only experienced sector intermediaries with a proven track record of managing large-scale initiatives are eligible. Proposals must demonstrate a path to financial and operational sustainability beyond the grant period and provide a detailed plan for achieving measurable impact, including job creation and support for vulnerable groups.

Grant Benefit and Implementation Period

The Jobs Fund benefit comes in the form of a cost sharing grant. Private companies and public entities must demonstrate ability to provide cash matched funding in a ratio of 1:1 and NPOs/NGOs benefit from a more advantageous ratio of 1:0.5. The minimum grant size is R5 million for applications and proposed projects must achieve project outcomes (e.g job creation). Projects must be implementable over a three-year period, with clear milestones and measurable outcomes.

Priority Sectors

This funding round prioritises job creation in the green and informal economies. The green economy includes sectors that promote environmental sustainability while supporting economic growth such as renewable energy (solar, wind, biomass), sustainable agriculture and agri-tech, energy efficiency, waste management and recycling, water and wastewater management, green transport, and eco-friendly buildings. The informal economy encompasses a wide range of economic activities that are often unregulated or lacking formal protections and includes areas such as street vending, small-scale farming, informal building trades, care work (including childcare and eldercare), artisans and repair services, as well as informal transport and delivery services.

Things to consider prior to submitting an application

The funding rounds are highly competitive, and all applications will be assessed against the impact criteria of the programme. Proposals must demonstrate strong social impact, particularly for marginalised communities, with a clear theory of change and measurable outcomes. Projects should exhibit additionality, proving they would not be viable without the Fund’s support and should address specific funding risks that deter other investors. A convincing path to sustainability is essential, with well-defined milestones. Proposals should introduce innovative approaches, be scalable or replicable, contribute to systemic change in their sector, and be backed by organisations with the capacity, experience, and infrastructure to deliver and measure impact effectively.

Contact Catalyst Solutions if your company is interested in accessing Jobs Fund grant support or if you require additional information.

Jo-Anne Balcorta
joanne@catalystsolutions.global
082 310 6863

Moeketsi Marumo
moeketsi@catalystsolutions.global
082 080 9416

Pieter Wagener
pieter@catalystsolutions.global
082 857 5120

2025 Budget Speech Highlights

The budget has brought forth several crucial updates related to carbon tax, energy efficiency and incentives. We’ve compiled a summary of the key proposals.

Carbon Tax:

• Increased Carbon Tax Rate:
• The carbon tax rate increased from R190 to R236 per tonne of CO2e from 1 January 2025.
• The carbon fuel levy will also increase from 2 April 2025, with petrol rising by 3c/litre to 14c/litre and diesel by 3c/litre to 17c/litre.
• Phase 2 Carbon Tax Proposals:
• Extension of Section 12L: The energy-efficiency tax incentive (Section 12L) to be extended until 31 December 2030.
• Electricity Price Neutrality: The commitment to electricity price neutrality is extended to 31 December 2030, to shield consumers from higher costs. The proposal includes removing the electricity generation levy from 1 January 2026 and applying the carbon tax to electricity generation emissions. Electricity generators to continue deducting part of the renewable energy premium from their carbon tax liability, aiming for the carbon tax on electricity generation to be revenue neutral.
• Carbon Offset Allowance Increase: From 1 January 2026, the carbon offset allowance to be increased by 5 percentage points, to an offsets allowance of up to 10% for fugitive and process emissions and up to 15% for combustion emissions. Future carbon offset allowance increases may be considered.
• Trade-Intensity Threshold: The 30% trade-intensity threshold for the trade exposure allowance to be retained to allow a longer transitional period for hard-to-abate sectors.
• Basic Tax-Free Allowance: The basic tax-free allowance to be maintained until 31 December 2030, with future reductions to the allowance to be considered from 1 January 2031.
• Carbon Budget Allowance: The voluntary carbon budget allowance to be extended until 31 December 2025.
• Electricity Sector Benchmark: Under the carbon tax, companies may qualify for a performance allowance if they outperform an approved sector intensity benchmark, which does not yet exist in the electricity sector. A greenhouse gas emission intensity benchmark of 0.94 tCO₂e/MWh for the electricity sector to be introduced from 1 January 2026.
• Carbon Offset Utilisation: The utilisation period for carbon offsets generated from approved projects before the introduction of the Carbon Tax to be extended to 31 December 2028.
• Other additional tax amendments proposed for the upcoming legislative cycle:
• Emission Factor Alignment: Schedule 1 of the Carbon Tax Act (2019) emission factors for natural gas and coal will be aligned with DFFE-approved Tier 2 emission factors from 1 January 2026.
• Fugitive Emissions Formula: The fugitive emissions formula in Section 4(2)(b) of the Carbon Tax Act will be clarified, with the oil and natural gas formula applied to solid fuel transformation activities.
• Sequestration Deduction: The sequestration deduction for the paper and pulp sector to be extended to third-party timber sequestration from 1 January 2026.
• Additional Carbon Offset Standards: Additional carbon offset standards to be evaluated for inclusion under the carbon tax.

Energy:

• Accelerated Renewable Energy Tax Incentive:
• The temporary section 12BA accelerated renewable energy tax incentive introduced in 2023 expired on 28 February 2025.
• After 28 February 2025, the section 12B renewable energy tax incentive will be in effect again with the leasing provisions remaining unchanged. The generation limits remain unchanged, with renewable projects over 1 MW allowed an accelerated depreciation allowance over three years whilst solar projects less than 1 MW qualifying for a 100% depreciation allowance in the first year of use.
• Diesel Refund Adjustment:
• From 1 April 2026, the diesel refund of the general fuel levy and RAF levy for farming, mining, and forestry operations to be applied to all eligible diesel purchases declared to SARS (rather than to 80% of eligible purchases).

Grants and Tax Incentives:

• S11D R&D Tax Incentive:
• The Innovation focussed incentive remains unchanged until at least 2033 offering an additional 50% tax deduction.
• Support Programme for Industrial Innovation (“SPII”), the Technology Innovation Agency (“TIA”) and other innovation grants:
• SPII, TIA and THRIP among others continue to receive funding and remain open for applications.
• DTIC Incentives & Industrial Growth:
• R18.4 billion has been allocated over the medium term for various business incentives under the Department of Trade, Industry and Competition (DTIC), supporting industries such as automotive, film, business process outsourcing, special economic zones (SEZs), clothing and textiles, and electric vehicle production.
• Small Business Development:
• The Department of Small Business Development has been allocated R2.1 billion over the medium term to support an estimated 120,000 small businesses, focusing on women, youth, and disabled entrepreneurs in townships and rural areas. Additionally, R313.7 million has been set aside to establish SME hubs to facilitate business expansion.
• Corporate Tax Incentives & Employment Support:
• The maximum Employment Tax Incentive (“ETI”) benefit remains R1,500 per month for the first 12 months and R750 per month for the second 12 months. Effective from 1 April 2025 the eligible income bands have however been adjusted for inflation, allowing more businesses to benefit.
• Urban Development Zone (UDZ) Tax Incentive Extension:
• The sunset date for this tax break has been extended until 31 March 2030 to encourage investment in urban renewal​.

Concluding Comments:

We’re pleased to see that the recent carbon tax phase 2 proposals announced in the budget are less severe than those published in the 2024 discussion paper by National Treasury. Initially, phase 2 included a proposed 10% reduction in the basic allowance starting in 2026 with an annual reduction of 2.5% thereafter which would have heavily impacted carbon taxpayers. Thankfully, the current proposal suggests maintaining the basic allowance until 2030.

We’re also encouraged that National Treasury plans to extend the section 12L Energy Efficiency Tax incentive until 31 December 2030. This extension will lead to continued investment in energy efficiency measures. Additionally, proposed changes to the carbon offset allowance and standards will create more opportunities for project development aligned with the Government’s goals for reducing greenhouse gas emissions and increasing the domestic supply of carbon offsets in the market.

Despite the latest announced proposals, the carbon tax will still significantly impact taxpayers in the coming years. We recommend our clients assess their emissions, explore reduction opportunities, develop carbon mitigation plans, and consider carbon offset opportunities and other energy efficiency measures.

Catalyst Solutions will continue to assist our clients in navigating the latest changes announced and in developing effective sustainability strategies, whilst taking advantage of the available incentives and other savings opportunities.

For additional information or to discuss how these updates may impact your business please contact us.

Christo Engelbrecht:
christo@catalystsolutions.global
+27 84 513 8177.

EEP Africa Open Call For Proposal: Exciting Opportunity For Clean Energy Innovators

Are you a clean energy innovator looking for funding to scale your project?

The 2025 EEP Africa Call for Proposals opens on 17 February 2025, offering early-stage grant financing to companies driving renewable energy and energy efficiency solutions in Southern and Eastern Africa.

Background

EEP Africa is a trusted partner in advancing clean energy innovation. By providing risk-tolerant grants, technical support, investment facilitation, and knowledge sharing, EEP Africa has helped numerous companies scale their solutions and increase energy access in Africa. EEP Africa welcomes applications from private companies, startups, and social enterprises from any country, provided they have early-stage projects in EEP Africa target countries and maintain a strong local presence. Applicants must be legally registered for at least six months before applying. While NGOs, charities, and research institutions are not eligible for direct funding, they are encouraged to participate as project partners to support implementation and knowledge sharing.

How the Incentive Works

EEP Africa provides funding between € 200,000- € 1,000,000 for feasibility studies, pilot projects, replication, and scale-up initiatives that show a clear path to profitability and investment readiness. This is a unique opportunity to secure grant financing for innovative clean energy solutions that address pressing energy challenges.

Types of Projects That Qualify

Projects must be focused on renewable energy or energy efficiency and fall under one of the following categories:

• Residential Electricity Access – Expanding off-grid and mini-grid solutions.
• Productive Use of Energy – Enabling businesses to thrive with clean power.
• Mini-Grids & Power Generation – Strengthening decentralized energy systems.
• Clean Cooking Solutions – Advancing cleaner and more efficient cooking technologies.
• Mobility & Energy Efficiency – Supporting electric transport and smart energy use.

By participating in this funding round, businesses can scale their impact, reduce carbon emissions, create sustainable jobs, and drive economic growth in Africa. With the growing demand for affordable and sustainable energy, this is an opportunity to be at the forefront of change.

Stay Connected

Don’t miss out on this exciting funding opportunity! Follow Catalyst on LinkedIn for the latest updates and details on the application process and the submission deadline.

For further information or to discuss how this funding aligns with your project(s), feel free to reach out.

Draft Phase Two of the Carbon Tax – Key Highlights

Commentary to National Treasury is due by close of business on 13 December 2024.

The draft Phase 2 of the Carbon Tax proposes the following changes from a Carbon Tax and Revenue Recycling/Tax Incentives point of view:

Carbon Tax

i. Basic tax-free allowance

Currently, the 60% basic tax-free threshold applies to all emissions, below which the tax will not be payable.

National Treasury recommends a reduction in the basic tax-free allowance by 10% in 2026, and by 2.5% per year thereafter from 2027 to 2030. This will increase the effective carbon tax rate over time. A reduction of the basic tax-free allowance by at least 2.5% per year from 2031 will be considered.

The reduction in the basic tax-free allowance will be offset by the increases to the carbon offset allowance and the performance allowance for combustion emissions effective from 2026.

ii. Performance allowance

This tax-free allowance, currently set at 5% for combustion emissions, was introduced as a transitional measure to reward companies that implemented mitigation measures (before the introduction of the carbon tax) and encourage firms to reduce the carbon intensity of their production processes relative to their peers.

To encourage the implementation of mitigation plans by companies, it is proposed that mitigation plans, as required under the recently enacted Climate Change Act, must be approved by the Department of Forestry Fisheries and the Environment (“DFFE”) and implemented by companies in order to qualify for the performance allowance.  Where companies fully implement measures set out in the mitigation plans and perform better than the agreed benchmarks, they would qualify for the full performance allowance and if companies do not comply, the performance allowance would be forfeited.

National Treasury is also proposing an increase in the performance tax-free allowance by 5% to 10% effective from 2026 for combustion emissions.

To enable electricity generators to benefit from the performance allowance, a benchmark of 0.94 tCO2e/MWh has been developed for the electricity sector, based on the emissions intensities of the existing coal power stations. A benchmark in the range of 0.6 to 0.9 tCO2e/MWh is proposed from 2031.

iii. Carbon offset allowance

The current offset allowance provides flexibility to firms to reduce their carbon tax liability by claiming a carbon offsets allowance of either 5% or 10% of their total greenhouse gas (“GHG”) emissions through investment in projects that reduce their emissions outside their taxable activities.

National Treasury is proposing an increase in the offset allowance by 15% to a maximum of 20% for process or fugitive emissions and 25% for combustion emissions from 2026 to stimulate domestic carbon market activities.

To ensure sufficient supply of credits in the domestic market and maintain the environmental integrity of the carbon offset scheme, it is proposed that the utilisation period for offsets from projects approved and registered under the eligible standards before the introduction of the carbon tax, including renewable energy projects, is extended for an additional three years from 31 December 2025 until 31 December 2028.

The Section 12L Energy Efficiency Savings tax incentive comes to an end in December 2025.  To assist industries in the short term and to encourage innovation and additional investments in energy efficiency measures, it is proposed to allow eligible energy efficiency projects including those developed under the 12L tax incentive under the carbon offset scheme.

iv. Local carbon offset standards

Due to the barriers of high financial cost and bureaucratic processes for developing carbon offset projects under the international standards (Clean Development Mechanism, Verified Carbon Standard, and Gold Standard), a framework is being finalised by DFFE, the Department of Energy and Electricity, and National Treasury for the implementation of local offset standards. The framework is expected to be finalised and published before the end of the 2025 financial year.

The approved standards will be included as eligible standards for purposes of carbon offsets under the carbon tax and necessary changes will be made to the Carbon Offset Regulations.

v. Carbon budget allowance

National Treasury proposes the removal of the 5% carbon budget tax-free allowance as carbon budgets become mandatory from 1 January 2026. The allowance will be replaced with an equivalent increase in the carbon offset allowance.

An extension of the carbon budget allowance for an additional year until 31 December 2025 is proposed for voluntary participation by companies in the carbon budget system.

A higher carbon tax rate of R640/tCO2e on GHG emissions exceeding the allocated carbon budget in terms of the Climate Change Act is proposed from 1 January 2026. Proposed legislative amendments to the Carbon Tax Act will be published either in the 2025 or 2026 Taxation Laws Amendment Bill for public comment. This will be done after the Climate Change Act comes into effect and the carbon budget and greenhouse gas mitigation plan regulations are gazetted by the DFFE.

vi. Trade exposure allowance

The allowance is currently provided to address any potential adverse impacts on industry competitiveness due to the carbon tax, with companies within sectors with trade intensities of 30% or higher qualifying for the full trade exposure allowance of 10%.

National Treasury is proposing an adjustment to the trade intensity threshold for maximum trade exposure allowance from 30% to 50% from 2026 as announced in the 2022 Budget.

Sectors with trade intensities greater than or equal to 50% will qualify for the full 10% trade exposure allowance while sectors with trade intensities between 20% and 50% will qualify for an allowance of between 4% and 9.8%. Sectors with a trade intensity of less than 20%, such as the Electricity, Gas and Water Supply SIC major divisions, will not qualify for the allowance.

vii.  Process and fugitive emissions allowance

To allow industry a longer transitional period for the “hard-to-abate” sectors, no changes are proposed to the process and fugitive emissions allowances of 10% for the period 2026 to 2030. A continuation of this allowance beyond 2030 will be considered.

viii. Maximum tax-free allowance

From 2026 to 2030, changes to the maximum tax-free allowance will be aligned with adjustments to the basic, carbon offset and performance allowances.

ix.  AFOLU and Waste

The agriculture, forestry and other land use (“AFOLU”) and waste activities’ emissions are excluded from the carbon tax net due to lack of appropriate methodologies to accurately determine GHG emissions and monitor and verify emissions.

Due to challenges with accurate methodologies to quantify GHG emissions from the AFOLU and waste sector activities, it is proposed that the blanket exclusion and provision of the 100% basic tax-free allowance be retained.

x. Sequestration

Following consultations with the DFFE, it is proposed to place a cap of 70% on the amount of sequestered emission removals that would be eligible for the tax deduction.  This will preserve the environmental integrity of the carbon tax and provide an emissions buffer where there are high uncertainties around removal estimates. Going forward, there might be a need to replace the sequestration deduction with the carbon offset allowance.

Revenue Recycling and Tax Incentives

i. Section 12L tax incentive

To encourage energy efficiency investments, it is proposed that the 12L incentive is allowed to lapse at the end of December 2025 and the carbon offset mechanism is expanded to include energy efficiency projects such as eligible 12L projects approved under the SANS 50010 Energy Efficiency Savings standard.  This will promote investments in energy efficiency measures, reduction in scope 2 electricity emissions and job creation.

ii. Tax incentive for green hydrogen

National Treasury proposes the extension of the 100% depreciation allowance for solar PV to green hydrogen production in line with the recommendations from the Green Hydrogen Commercialisation Strategy approved by Cabinet in 2023.

iii.  Electricity price neutrality

National Treasury is recommending the removal of the electricity generation levy and implementation of the carbon tax proposals for Phase Two. The carbon tax would replace the electricity levy from 2026 and will be revenue neutral. Electricity generators can continue to deduct a portion of the renewable energy premium from their carbon tax liability where there would have been a difference between the carbon tax and electricity levy. This will help to reduce the impact of higher electricity prices on consumers.

iv. Support for Strategic Priorities

Although the carbon tax and other environmental taxes are not earmarked, as the carbon tax rate is increased over the short to medium term there could be revenue-raising potential. Taking into account fiscal constraints, targeted support could be considered as part of revenue recycling measures, such as reskilling workers’ programmes; free basic electricity support targeted to renewable-based energy; targeted support for disaster risk reduction; and support for enhancing public transport infrastructure, among others.

We encourage carbon taxpayer to get in touch with us if you are interested to comment or submit responses to National Treasury before the deadline of 13 December 2024 in response to the published draft Phase Two of the Carbon Tax.

Please contact Catalyst Solutions if you would like to discuss the proposed phase 2 Carbon Tax, the development of mitigation plans, latest updates on carbon budgets and the development of carbon offset projects.

2024 Draft Taxation Laws Amendment Bill

Commentary is due by close of business on 31 August 2024. The draft TLAB proposes the following changes from a Carbon Tax and Tax Incentives point of view:

Carbon Tax

Changes to Schedule 1

National Treasury proposes changes to Schedule 1 of the Carbon Tax Act to use country-specific calorific values and emission factors for the following fuels:

• Aviation gasoline;
• Diesel;
• Jet kerosene;
• Liquefied Petroleum Gas (LPG);
• Paraffin;
• Petrol; and
• Residual fuel oil/heavy fuel oil.

For the fuels above, National Treasury has also removed the calorific values at the lower and upper confidence intervals, leaving only one calorific value for use.

In addition to the above, acetylene, biodiesel, biogasoline, methane rich gas, refuse derived fuels, sawdust and tyres are proposed to be added to the schedule as separate fuels.

Finally, some fugitive emission factors are proposed to be added whilst others are proposed to change in Schedule 1, particularly for coal mining and oil production.

Although the intention of the above changes is to align the Carbon Tax Act with the Department of Forestry, Fisheries and Environment’s Methodological Guidelines for the Quantification of Greenhouse Gas (GHG) Emissions, it is important that you understand the impact these changes will have on your carbon tax liability. Should any of the calorific values or emissions factors overstate your Carbon Tax liability, we would encourage effected tax payers to respond to the draft TLAB and/or to engage with National Treasury. This is particularly important if any of the calorific values or emission factors over-estimate your actual emissions.

The proposed amendments will take effect from 1 January 2024. As such, the updated Schedule 1 will need to be applied when submitting the 2024’s calendar carbon tax accounts in July 2025.

Carbon offset regulations

There is a proposed change to the carbon offset regulations. Currently, carbon offsets from renewable energy projects that are over 15MW are not eligible under the South African carbon tax, unless it can be demonstrated that the cost is higher than R1.09/kWh. The proposed change will see this increase to 30MW. As such, you only need to demonstrate the R1.09/kWh condition for projects over 30MW in order for them to generate carbon offsets that qualify under the South African carbon tax.

Renewable Energy Premium Deduction

Under the Carbon Tax Act, electricity producers like Eskom can receive a deduction for buying renewable energy. As Eskom splits into three companies (generation, transmission, and distribution), its renewable energy agreements will move to the National Transmission Company of South Africa (NTCSA), a new subsidiary.

However, the proposed amendment to the Carbon Tax Act means that Eskom’s generation division, the carbon taxpaying entity, will still be able to make use of the renewable energy premium from the renewable energy agreements it transfers to NTCSA.

The proposed amendments will take effect from 1 January 2024.

Tax Incentives

Employment Tax Incentive (ETI)

In the past three years, the Government revised the ETI Act to address misuse through aggressive tax schemes, where training institutions falsely claimed incentives for students classified as employees but who didn’t receive actual wages, as fees were deducted instead. The Government asserts that employers should bear training costs and that creating fake jobs to exploit the ETI undermines its purpose. With high youth unemployment limiting young South Africans’ opportunities for gaining skills and experience, the ETI’s main goal is to encourage employers to hire young job seekers, providing them with a fair wage and key work experience for future employability.

As a solution, a modification to the definition of “monthly remuneration” is proposed which ensures that when calculating an employee’s remuneration, only the cash amount is to be considered after any deductions. Any non-cash payments are to be disregarded.  Section 5 of the ETI Act is proposed to be updated to include a new penalty – if an employer wrongfully claims the tax incentive for any disregarded amounts, they must pay a penalty equal to the full amount of the incentive received.

This change is proposed to take effect from 1 March 2025 and will apply to all assessments from that date onwards.

Incentive for Electric Vehicle Manufacturing

A new incentive under Section 12V of the Income Tax Act (ITA) is proposed to boost investment in making electric and hydrogen-powered vehicles locally. This incentive will allow manufacturers of electric and hydrogen-powered vehicles to deduct 150% of the cost of new and unused buildings, machinery, plant, implements, utensils and articles.

It is important to note that in order to ensure that there is no double deduction, taxpayers who qualify for the section 12V deduction will not be allowed to claim deductions under section 12C, section 13, and section 13quat of the ITA for assets brought into use during the period of the incentive.

The proposed incentive will come into effect on 1 March 2026 and applies in respect of assets brought into use on or after that date and before 1 March 2036.

Learnership Tax Incentive

The proposed amendment to the Learnership Tax Incentive seeks to extend the programme by another three years, to 1 April 2027, in line with the Minister’s 2024 Budget announcement.

Please contact Catalyst Solutions if you would like to discuss any of the above and to possibly make comments in response to the draft TLAB published before the deadline.

New grant program for SMEs – Industry Growth Program

The Federal Government has recently opened a new grant program designed to support startups and SMEs undertaking commercialisation and/or growth projects.

The new grant program is conceptually very similar to the Coalition’s Accelerating Commercialisation grant program, which was embroiled in controversy following an Australian National Audit Office investigation, and which was cancelled in the May budget earlier this year.

The new program sees the Department of Industry, Science and Resources providing $392.4 million worth of grants. The minimum grant amount is $50,000 and the maximum grant amount is $5 million, and these funds will need to be matched by the business. It is noted that the maximum grant is five times greater than what was offered by the Accelerating Commercialisation grant program.

The commercialisation project must relate to one of the following ‘priority areas’:

• Enabling capabilities (including artificial intelligence technologies, advanced information or communication technologies, autonomous systems, etc.)
• Renewables and low emission technologies
• Defence capability
• Transport
• Medical science
• Value-add in resources
• Value-add in agriculture, forestry and fisheries.

One of the key differences about the new program is that applicants must first be connected with an Industry Growth Program Adviser who will provide tailored advice about the project. Only once the advice has been provided can the business then apply for the grant funding. This advisory component of the program is what has recently opened, with applications for grant funding only opening in 2024.

If you would like to know more about this or any other government incentives in Australia, please get in touch to arrange a discussion.