Solar and renewable energy tax incentives

South Africans are at a point where they are becoming desperate for reliable consistent energy sources, whether it be to operate their businesses or just to be able to keep the lights on at home.

On the 09 February 2023 President Cyril Ramaphosa indicated that in the budget speech to be presented by the Minster of Finance on 22 February 2023, tax incentives would be put in place specific to rooftop solar systems for households and businesses.

The Minister of Finance has now presented his budget speech and announced the proposed tax incentives which have been awaited with much anticipation.

Currently within the provisions of the Income Tax Act No. 58 of 1962 (“the Tax Act”) there is in place Section12B which specifically provides for a capital allowance for moveable assets used in the production of renewable energy.

This allows for a deduction on a 50|30|20 basis over three years in respect of any machinery, plant, implement, utensil or article owned by the taxpayer.

It is important to note that the allowance is only available if the asset is brought into use for the first time by the taxpayer. In other words, the allowance is not limited to new or unused assets. The wording merely prevents the taxpayer from claiming the section 12B allowance twice on the same asset.

The asset must be brought into use for the purposes of the taxpayer's trade to generate electricity from wind power, solar energy, hydropower (below 30 megawatts), biomass and photovoltaic projects (above 1 megawatt).

So, there has been something in place , although this has focussed on trading operations and not the man in the street.

The first proposal is that this incentive will be expanded so that businesses will now be placed in a position to claim a 125 percent deduction in the first year for all renewable energy projects.

There will be no thresholds placed on generation capacity and the incentive will be available for any investments brought into use for the first time between 01 March 2023 and 28 February 2025.

This is factually, in my view, a fairly significant incentive for businesses in South Africa although they will still need to be in a position to inject the required capital in order to get any intended project operational.

So what about the man in the street?

The Minister has proposed a rooftop solar incentive for individuals which will enable individuals to obtain a tax rebate equal to 25% of the cost of any new and unused solar photovoltaic panels limited to a maximum amount of R 15 000.

These must be purchased and installed at a private residence and the installation must be supported by a certificate of compliance issued from 01 March 2023 to 29 February 2024.

The rebate is limited to the cost of the solar panels and will exclude inverters or batteries.

In considering this incentive the cost of a very basic rooftop solar system, for most South African households is likely to be prohibitive and if the wish is to go beyond that, this becomes an even greater hurdle to breach.

Most households are likely to struggle to access the capital needed to install rooftop solar systems even at entry level, particularly in the current economic climate.

So does this incentive really help the man in the street?

Every little bit helps but for the majority of South Africans the factual use of this rebate is unlikely to be a reality.

John Jones
Director: International and Corporate Taxation, Johannesburg

Related articles