Finance

Kiss solar tax breaks goodbye

Roof solar

The government has not extended the incentives for individuals and businesses to install solar as part of its efforts to minimise the impact of rolling power cuts and potentially bring load-shedding to an end. 

Finance Minister Enoch Godongwana did not mention any extension of the tax breaks for individuals and businesses in his Budget Speech.

As per Treasury’s initial announcement, the rebate for individuals will end on 29 February 2024.

In last year’s Budget, Godongwana announced two tax measures to encourage businesses and individuals to invest in renewable energy, increase electricity generation, and reduce stress on Eskom’s grid.

Businesses were enabled to reduce their taxable income by 125% of the cost of an investment in renewables, with no thresholds on the size of projects by companies.

Individual households were enabled to claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000. 

The panels must be new or unused panels but may be in addition to an existing system. 

Individuals who pay personal income tax could use this to decrease their tax liability in the 2023/24 tax year.

This rebate did not include the installation of generators, inverters, batteries, or installation costs. The rebate can only be claimed against the panels.

Businesses have access to a different tax incentive, which will still run an extra year, with the deadline for that set for February 2025.

The only mention of the incentive in the budget is the Treasury’s review of the tax break, which it said has “promoted the installation of solar panels that are now generating 5,200 MW of electricity for households and businesses”.

Finance Minister Enoch Godongwana

There were mixed responses to the implementation of the solar tax breaks in last year’s Budget, and it is not clear if these have been resolved. 

Webber Wentzel said the Treasury’s approach to the solar energy tax incentive might be short-sighted and fails to grasp the functioning of an efficient solar energy system fully.

Their first concern is that the incentives only cover rooftop solar panels, which are only one component of a fully functioning solar energy system.

“A fully functioning solar energy system does not only require the installation of rooftop solar panels — each component, which includes inverters and batteries, is crucial.”

“Any rooftop solar system which feeds into the grid […] requires an inverter to convert the direct current (DC) electricity (generated by the solar panels) to alternating current (AC) electricity, which is what is needed for the energy to be fed back into the national electricity grid.”

For inverters not to be covered by the solar energy tax incentive is, therefore, “unintelligible” and contradictory to the goal of increasing generation capacity.

Webber Wentzel’s second issue with the government’s solar incentive is the requirement that the solar panels must be “new and unused” to qualify for the tax credit. 

“When one considers the magnitude of the energy supply crisis that South Africa is facing, as well as the imminent climate catastrophe, the pecuniary gain that Treasury seeks to obtain is injudicious and defeats the so-called purpose of the solar energy tax incentive.” 

“Therefore, while the introduction of the solar energy tax incentive constitutes a clear indication by the government of its commitment to tackling the current energy supply crisis and the imminent climate catastrophe, the fiscal conservatism by Treasury may ultimately be its undoing.”

While many applauded the government’s decision, others said the measures do not go far enough in addressing the country’s energy concerns.

Iraj Abedian, CEO of Pan-African Investment and Research Services, said the incentives are a “good policy, badly implemented”.

For Abedian, the incentives are limited to South Africa’s small tax base and are only temporarily available. They are, therefore, unlikely to have a major impact.

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