Solar Tax Incentive for Businesses in South Africa

3 min read

On the 1^st of April 2023, the South African treasury announced that it was amending the previous renewable energy tax incentive to include a more generous one. Section 12B of the Income Tax Act No. 58 of 1962 was introduced in 2004, where businesses could write off investments in biodiesel and biofuels. Government then extended the tax incentive to electricity generated from wind, solar, and hydropower up to 30 MW, and biomass (organic waste, landfill gas or plants). Assets used in the production of electricity using these energy sources qualified for a tax incentive of 50% of cost in the first year, 30% in the second year and 20% in the third year.

The Act underwent further amendment in 2012 and then again in 2015 to reduce the effect of the electricity supply shortage in the country. The current revision to the Act will include a 125% tax incentive of the cost of the assets used to generate electricity from wind energy, solar energy, hydropower, and biomass (organic wastes, landfill gas or plant material) in the first year. The tax incentive will be in effect for a two-year period, between 1 March 2023 and 1 March 2025. This can reduce the tax liability of a company by up to R337 500.

In the event of a business selling an asset that qualifies for such an incentive, 25% of the sale price of the asset will be included as income and subsequently taxed.

So How Can Businesses Benefit From This Tax Incentive?

• Install a renewable energy system – the best way that businesses can take advantage of this tax incentive. This would have to be a renewable energy system powered by solar, wind, hydropower or biomass. For example, if a company were to invest in a wind turbine worth R50 000, they could qualify for a R62 500 tax deduction on their end of year financial statement. This will also reduce their electricity use and cost of ownership.
• Purchase renewable energy products and sell them – although this is probably not the most morally correct option, it still can be exercised. Businesses can simply purchase renewable energy products, not use them, and then sell them off by the end of the year. According to the tax incentive Act, they should receive a net tax deduction.
• Install renewable energy and sell the produced energy – businesses can also pay to install renewable energy on their property or a property that is not their own, and then sell the electricity that is produced by this renewable energy plant. This, however, may require a permit depending on the size of the plant.
• Set up public EV car chargers powered by renewable energy – business can also install renewable energy systems that will power EV car chargers that will be available for the general public. The businesses can then either charge a fee in order to profit from this project or charge a small enough fee to the point that they break-even. Both cases would leave the business with a net tax deduction.
• Purchase renewable energy for charitable parties – finally, businesses can purchase renewable energy products for their local schools, churches, sports academies, charitable organisations and more. They can then claim the cost of the purchase as a tax deduction.

Read the full draft here: TABLE OF CONTENTS (sars.gov.za)

The new renewable energy tax incentive for businesses is set to bring many benefits for South Africa in terms of electricity grid stability, amount renewable energy online, pollution and economic empowerment. If used and monitored correctly, it could go a long way to bringing the country back onto the path to greatness.

Disclaimer: this articles by no means serves as tax advice. If you are looking for tax advice, please consult an accounting or tax professional certified with the FSCA.

What do you think of the new renewable energy tax incentive for businesses? Are there any other methods that businesses can benefit that I left out? Share your thoughts by replying to this email!

For more information on renewable energy tax incentives, or any other energy related articles, view the blog posts on my website and be sure to open my weekly emails every Tuesday at 9AM CAT.

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