How new tax incentives for renewable energy generation will benefit businesses and households

Harvesting the benefits of new tax incentives for renewable energy generation

While South Africa is experiencing rolling power outages, the National Treasury and the South African Revenue Services (SARS) are planning to introduce new renewable energy incentives. They have published for public comment the draft Taxation Laws Amendment Bill 2023 (“the Bill”) which contains new renewable energy incentives aimed at addressing the country’s energy crisis and encouraging private investment in renewable energy generation. The proposed incentives in the Bill are the expanded renewable energy tax incentive and the solar energy tax incentive.

Benefits for businesses
Under the draft legislation, businesses qualify for a 125 per cent tax deduction on capital expenses for all renewable energy projects which generate electricity from wind power, photovoltaic solar energy, concentrated solar energy, hydropower and biomass compromising organic wastes, landfill gas or plant material.

The expanded renewable tax incentive will be available to taxpayers who are operating businesses, with no limit on the amount of generation capacity. The incentive applies to investments made in renewable energy projects that are put into operation for the first time on or after 1 March 2023 and before 1 March 2025. It is available for a two-year term.

For example, a R1 million renewable energy project would be eligible for a R1.25 million deduction. At the current corporate tax rate of 27%, this results in a tax saving of R337 500.

The expanded renewable energy tax incentive will assist companies to reach their environmental, social and governance goals and reduce their tax liabilities, and it will assist the country in mitigating the energy crisis.

Opportunities for individuals
Individuals will be eligible for a solar tax credit equal to 25 per cent of the actual cost of any new and unused solar PV panels which each has a generation capacity of 275W or more and value of up to R15,000.

The solar tax credit will only apply if the solar panels are installed and mounted on or affixed to a residence that is mainly used for domestic purposes by a natural person. The installation must be connected to the distribution board of the residence, and the installation must have an electrical compliance certificate issued in terms of the Electrical Installation Regulations of 2009.

The solar incentive will be available for a year and will apply to newly purchased and unused solar PV panels that are being used for the first time by an individual between 1 March 2023 and 1 March 2024.

If person A buys 15 solar energy panels on 31 June 2023 at a cost of R5000 per panel and total cost of R75 000, the individual will quality for a tax rebate of R15 000. (Twenty-five per cent of R75 000 amounts to R18 750, but person A can only claim R15 000.)

The new proposed tax legislation will likely be implemented before the end of this year. However, it will apply retrospectively, implying that all renewable energy assets which are put into use for the first time on or after 1 March 2023 will qualify for the incentives.

By understanding how these incentives are calculated, businesses and individuals can make informed decisions about the financial feasibility of investing in renewable energy. Additionally, by taking advantage of the available incentives, businesses can reduce their carbon footprint and save money on their energy bills.

Renewable energy incentives have had a positive impact in countries like China by reducing carbon emissions, diversifying supply and improving energy security. China is now the world's largest producer of renewable energy in terms of capacity. It is not showing any signs of slowing down, possibly adding 30% additional solar capacity this year.

Key takeaways
• The expanded renewable energy tax incentive only applies to businesses.
• It offers a 125 per cent tax deduction on any capital expenses relating to all renewable energy projects for business, with no limit on the amount of electricity generated.
• The solar tax incentive only applies to individuals.
• Only new and unused solar PV panels are eligible for the solar tax incentive to ensure that the country’s energy-generating capacity increases.
• The solar tax incentive is only available for solar PV panels with a minimum generation capacity of 275W per panel, and the solar PV panels must be installed at a residence that is mainly used for residential purposes.
• The maximum rebate under the solar tax incentive is R15 000.