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Consolidated Comparison: Discussion Paper vs Tax Law Amendment Bill 2025
March 9th 2026
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The Taxation Laws Amendment Bill (TLAB) 2025 provides clarity on the implementation of Phase 2 of South Africa’s Carbon Tax. Several proposals contained in the earlier Phase 2 Discussion Paper have been revised or reversed, resulting in a more moderate transition framework.
The table below summarises the key differences between the Phase 2 Discussion Paper proposals and the current TLAB 2025 position.
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| Status | Provision | Discussion Paper Proposal | TLAB 2025 / Current Position |
|---|---|---|---|
| REVERSED | Basic Tax-Free Allowance | Reduced from 60% → 50% from 2026 | Retained at 60% |
| REVERSED | Further Basic Tax-Free Allowance Reductions (2027-2030) | Additional 2.5% per year reduction | No reductions proposed |
| REVERSED | Performance Allowance | Increase from 5% → 10% for combustion processes | Retained at 5% |
| REVERSED | Trade Exposure Threshold | Increase threshold 30% → 50% | Retained at 30% |
| MODIFIED | Carbon Offset Allowance | Increase to 25% (combustion) and 20% (process & fugitive) | 15% (combustion) and 10% (process & fugitive) |
| REVERSED | Section 12L Energy Efficiency Incentive | End December 2025 | Extended to 31 December 2030 |
| CONFIRMED | Voluntary Carbon Budgets | Extended for 2024–2025 | Confirmed for 2024–2025 |
| CONFIRMED | Mandatory Carbon Budgets | Implementation from 2026 under CCA | CCA assented; commencement date TBD |
| CONFIRMED* | Carbon Budget Exceedance Rate | R 640/tCO2e proposed on exceedance | Introduced under Section 14A of CTA (effective date TBD) |
| NEW PROVISION | Allowances on Emissions Exceeding Carbon Budgets | Not included in original proposal summary | No carbon allowance may be applied to emissions exceeding the carbon budget |
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Key Implications
- The basic tax-free allowance remains at 60 %, with no reductions introduced for Phase 2 under TLAB 2025. The previously proposed reduction of the allowance has therefore been reversed for the time being.
- The performance allowance remains capped at 5 %, rather than increasing to 10 % as proposed in the Phase 2 Discussion Paper.
- Carbon offset allowances are expanded relative to Phase 1, but at lower levels than initially proposed, with 15 % for combustion emissions and 10 % for process and fugitive emissions
- The trade exposure allowance remains unchanged, with the minimum trade exposure threshold retained at 30 %. The proposed increase to 50 % has not been adopted.
- The voluntary carbon budget system applicable during Phase 1 will transition to mandatory carbon budgets aligned with the Climate Change Act (CCA) framework once the relevant regulations come into effect.
- Emissions exceeding an approved carbon budget will be taxed at a rate of R 640 per tonne of CO2e. No carbon tax allowances may be applied to these excess emissions.
- The Section 12L Energy Efficiency tax incentive has been extended to 31 December 2030, providing continued support for industrial energy efficiency initiatives.
- The electricity price neutrality adjustment, designed to avoid double action cost impacts from electricity tariffs, has been extended to 31 December 2030.
Conclusion
The TLAB 2025 revisions indicate a more gradual transition into Phase 2 of South Africa’s carbon tax framework. Key tax-free allowances remain largely intact, while new compliance mechanisms, particularly mandatory carbon budgets and exceedance penalties, are introduced to strengthen emissions reduction incentives.
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