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
