Tax breaks for installing solar on your roof

Finance Minister Enoch Godongwana has announced that businesses will be able to reduce their taxable income on investment in renewable electricity generation. Households will receive a tax rebate upon installing rooftop solar panels.

President Cyril Ramaphosa, in his State of the Nation Address (SONA) on 9 February, announced that the government would “unleash businesses and households to invest in rooftop solar”.

Details were deferred to the Finance Minister’s Budget Speech, where he would “outline how households will be assisted and how businesses will benefit from a tax incentive”.

Businesses and civil society have been calling for a solar incentivisation scheme for years.

SARS Commissioner, Edward Kieswetter, said that SARS had already been “engaged by colleagues in the Treasury…to review measures to provide some relief and incentive” for people to invest in solar.

The Covid-19 bounce-back loan scheme would be repurposed, said Ramaphosa, to help businesses invest in solar.

Tax incentives, rebates and bounce-back loan scheme

During his Budget Speech, Godongwana outlined how investment in solar would be incentivised and explained how the bounce-back loan scheme would work.

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.

From the 1 March, “businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables”, Godongwana said.

There are no thresholds on the size of the projects, and the scheme will be available for two years.

For individual households, those “who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25 per cent of the cost of the panels, up to a maximum of R15,000”. This is only available for one year.

The panels must be new or unused panels but may be in addition to an existing system. The rebate only applies to panels which are brought into first use after 1 March and before 29 February 2024.

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

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

The government will be launching the Energy Bounce Back Scheme in April 2023, which is a repurposing of its Covid-19 predecessor.

Through this scheme, “the government will guarantee solar-related loans for small and medium enterprises”, Godongwana said.

Details will be outlined will the Scheme is launched in April, but its Covid-19 predecessor was limited to businesses with an annual turnover of less than R100 million, and businesses could receive a loan between R10,000 and R10 million.

The government has set aside R13 billion to cover these tax relief proposals.

Potential outcomes

Experts say that the increase in productivity from a reliable supply of electricity will far outweigh the tax revenue lost from the incentive scheme while also de-carbonising the economy.

The aforementioned scheme is expected to be coupled with a programme through which individuals can sell their excess electricity back to the grid.

However, Stanlib economist, Kevin Lings, points out that a tax break would have a small effect as South Africa’s tax base is small, which limits the incentive to a minority of the country.

Lings also notes that many of South Africa’s taxpayers have already invested in solar or backup power solutions, which will further limit the effect of a tax break. These individuals will not be able to reduce their future tax liability.

Most South Africans, regardless of how large a tax break, “just cannot afford it”, according to Lings.

Charles de Wet from ENSafrica lamented the inefficient nature of claiming a tax rebate from SARS as this is a lengthy process requiring additional systems to be set up.