SARS clarifies solar tax incentives

National Treasury and the South African Revenue Service (SARS) recently clarified the solar tax incentives announced at the start of the year in draft legislation now open for public comment.

National Treasury and SARS published the 2023 Draft Tax Bills and Regulations on 31 July 2023.

In particular, the 2023 draft Taxation Laws Amendment Bill (TLAB) and the 2023 draft Tax Administration Laws Amendment Bill (TALAB) have been published.

Cliffe Dekker Hofmeyr director Jerome Brink said that, given the urgency of the matter, the first draft legislation regarding renewable energy tax incentives was published on 21 April 2023. 

Brink said these incentives were put in place to arrest the decline in energy safety and supply in South Africa and assist with the country’s climate change goals.

“This legislation was welcomed in the sector and proposed a personal rooftop solar energy tax credit for individual taxpayers, as well as a separate and distinct 125% accelerated depreciation allowance for renewable energy generation assets,” he said.

After the publication of the first draft legislation in April, there was a public consultation process regarding the proposed renewable energy tax incentives. 

The revised legislation now published in the draft TLAB factors some of those public submissions into account.

Regarding the individual rooftop solar energy tax credit, there were extensive submissions that the proposed rooftop solar energy credit was not enough to increase uptake in solar. 

Many believed that, in monetary terms, the credit of 25% of the cost of the solar panels with an upper limit of R15,000 is not enough to incentivize the uptake of solar.

However, National Treasury said it had little flexibility to amend the monetary limit. 

This is because it has already been factored into budgets for the 2024 financial year, and the Treasury is confined to working within those parameters, said Brink.

The rooftop solar energy credit is limited to “new and unused solar photovoltaic panels, with the generation capacity of each being not less than 275W”.

Before the publication of the updated draft legislation, there was a lack of clarity on whether this clause would prevent taxpayers from claiming deductions for panels acquired before 1 March 2023 but installed afterwards. 

The draft TLAB clarified that the panels must be brought into use for the first time by the taxpayer on or after 1 March 2023 and before 1 March 2024.

Another big issue was that the incentives only cover rooftop solar panels, which are only one component of a fully functioning solar energy system.

For example, Brink said an inverter forms a substantial cost of any solar PV system and is required for operation. 

“This is because the inverter converts the direct current received from the solar panels to alternating current so that it can be used within South African households to power appliances and lights,” he explained.

“Without the inverter, the solar PV panels are not of much use.”

Brink said the rationale behind limiting the incentive to solar panels is that the government wants to encourage the “generation” of energy. Therefore, the incentives have not been extended to include batteries. 

Regarding the 125% accelerated depreciation allowance for renewable energy generation assets, the proposed revised section 12BA largely mirrors the existing section 12B 100% (or three-year write-off) for renewable energy assets, said Brink. 

However, he said there are some notable differences:

• “the allowance is limited to new and unused assets, and secondhand assets are, therefore, excluded;
• the assets must be brought into use on or after 1 March 2023 and before 1 March 2025;
• there are no generating capacity thresholds for hydropower, although there is a ceiling of 30 MW in section 12B;
• there is no distinction between solar PV assets generating less than or more than 1 MW as assets qualify for the 125% allowance irrespective of generating capability; and
• in addition to the normal restrictions on leased assets in section 12B, the proposed section 12BA provides that, under a finance lease type scenario, the seller cannot claim the allowance if it remains the owner during the period of the finance lease.”

The proposed draft legislation is currently open for public comment, with the due date for comments on 31 August 2023.