Loadshedding | Tax incentives on renewable energy - analysis of the 2023/2024 budget speech

Discover our series of articles introduced by our members on loadshedding | Article #7 WK Wilton

The 2023/2024 Budget Speech was delivered on 22 February 2023 by Finance Minister, Enoch Godongwana, with an overarching theme of “repair and maintenance” outlined his plan to reduce the fiscal deficit, whilst maintaining expenditure on social and infrastructure development. This would be achieved without increasing taxes, as the fiscus was bolstered by strong increases in revenue collection.

The Minister was proud to reaffirm tax relief measures carried over from the last budget speech regarding the reduction in the corporate income tax rate from 28% to 27% for financial years ending on or after 31 March 2023.

Tax incentives for renewable energy investment

Keeping in line with global trends, an increased focus on incentivising renewable energy was highlighted. Subject to the provision of Section 12B of the Income Tax Act No. 58 of 1962, corporate taxpayers who elect to invest in renewables will be able to claim a 125% tax deduction on their investment over the next two years, with no threshold limit. These renewable energy tax incentives are geared to run in parallel with Government’s plan to assuage the country’s energy crisis. This would be achieved by extending debt relief measures to Eskom, amounting to R254 billion.

S12B of the Income Tax Act No. 58 of 1962, as amended (“the Act”), provides for an accelerated write-off of qualifying assets, including the provision for a capital allowance of assets used in the production of renewable energy, more specifically:

Also covered in the income tax deduction are improvements to such assets, as well as any foundation or supporting structure that is an integral part of the operation of the machinery in question.

The section was amended in respect of assets brought into use for years of assessment commencing on or after 1 January 2016, for photovoltaic solar energy not exceeding 1 megawatt. In such a case, the deduction accelerates to 100% in year 1, without any apportionment. It was amended again in February 2023 under the Energy Support Package initiative. From 1 March 2023 and for a 2-year window period, businesses qualify for a 125% tax deduction of qualifying investment costs.

S12B offers an attractive incentive for those businesses wishing to insulate themselves against the potentially devastating impact of erratic electricity supply, and are encouraged to take advantage of this 2 year window period to maximize on their tax savings.

For further information, contact Javan J Naidoo, Tax Compliance / javan(@)wiltons.co.za / (+27) 11 873 0234