It is no secret that South Africa is currently going through an electricity crisis and much was hoped from Minister Enoch Godongwana on this topic in delivering his Budget Speech today. This on the back of South Africa having experienced loadshedding for 207 days in 2022 compared to 75 days in 2021.
In response to the crisis, National Treasury proposes tax incentives for businesses and individuals who produce renewable energy. This is aimed at bringing additional energy capacity onto the grid and achieving energy security in the long-term. In addition, the bounce-back scheme that was initially developed to assist small and medium businesses (‘SMEs’) cope with financial distress during the COVID pandemic will be reviewed and amended to provide for Government loan guarantees to SMEs investing in solar-related projects.
Section 12B of the Income Tax Act regulates allowances on assets used in generating renewable energy. The available allowances are limited or restricted based on the generating capacity or nature of the said assets. As such, not all renewable energy projects qualify for an allowance and in addition only applies to assets used by a taxpayer in carrying on of a trade. Natural persons earning income from employment typically do not qualify for this allowance.
However, the Minister announced in the 2023 Budget Review that businesses and individuals alike will qualify for tax incentives when investing in renewable energy projects. From 1 March 2023, businesses will qualify for a 125% tax deduction on qualifying investment costs for a 2-year window period. There will be no limit to the qualifying cost of such investments. This means that businesses will qualify for a cost plus 25% allowance on the cost incurred on renewable projects in the year it was incurred.
Individuals, on the other hand, will qualify for a rebate of the lower of 25% of the cost incurred to install solar panels, or R15 000. For example, should an individual invest R100 000 to instal solar panels, only R15 000 will be allowed as a rebate against his/her tax liability in that year of assessment. This incentive for individuals will only be valid for 1 year and is expected to conclude in the 2024 year of assessment.