/ 22 February 2023

Energy crisis triggers R13 billion tax relief

Solar Power Tower To Produce Enough Energy For 180,000 Homes
(Photo by Denis Doyle/Getty Images)

Finance Minister Enoch Godongwana has announced R13 billion in tax relief, the majority of which is to encourage households and businesses to invest in renewable energy.

Godongwana’s budget, tabled on Wednesday afternoon, provides for R4 billion in tax breaks to households that install solar, and R5 billion to companies, through an expansion of the renewable energy incentive. There is also no increase in the fuel levy, resulting in R4 billion in tax foregone.

According to the budget, the government has proposed an incentive for individuals to invest in rooftop solar. President Cyril Ramaphosa hinted at the tax incentive in his State of the Nation address earlier this month.

Individuals investing in solar will receive a tax rebate to the value of 25% of the cost of any new and unused solar PV panels. To qualify, the solar panels must be installed at a private residence and a certificate of compliance for the installation must be issued from 1 March 2023 to 29 February 2024. 

The rebate can be used to offset an individual’s personal income tax liability for the 2023/2024 tax year up to a maximum of R15 000 per person, according to the budget document. This means that, if a person purchases 10 solar panels at a cost of R40 000, their personal income tax liability could be reduced by R10 000.

In its current form, the renewable energy incentive — which is aimed at encouraging rapid private sector investment in renewable projects — allows businesses to deduct the cost of these types of investments over a one- or three-year period. Businesses can deduct 50% of the costs in the first year, 30% in the second and 20% in the third.

Under the expanded investment, however, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects, with no threshold on generation capacity. This adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.

There will also be changes to the bounce-back loan guarantee scheme to incentivise renewable energy and rooftop solar and address energy-related constraints experienced by small and medium enterprises. The government will guarantee solar-related loans for these businesses on a 20% first-loss basis.

The treasury, Godongwana said, would launch an energy bounce-back scheme in April 2023.

Moreover, the government has decided to extend the diesel refund system — which provides full or partial relief on fuel levies — to food manufacturers. This will go towards Ramaphosa’s promise that the government would find a way to mitigate the impact of load-shedding on food prices.

Although headline inflation has started to come down, food inflation accelerated to its highest level in 14 years in January as a result of higher input costs absorbed by manufacturers having to use generators during load-shedding.