Tax incentive for rooftop solar – A proverbial two birds, one stone?

The South African Reserve Financial institution estimated that the rolling blackouts hitting South African companies and households value the economic system roughly ZAR 900 million a day.  As well as, the Deloitte Centre for Sustainable Progress reported that – if left unchecked – local weather change might value the worldwide economic system USD 178 trillion over the subsequent 50 years. Subsequently, the proposed photo voltaic power tax incentive aimed toward encouraging the set up of rooftop photo voltaic panels to increase electrical energy era represents a chance to handle the present power provide disaster and the upcoming local weather disaster, proverbially, killing two birds with one stone. Or does it?

The eagerly anticipated introduction of tax breaks for householders and companies aspiring to put money into renewable power sources and improve electrical energy era was introduced by Finance Minister Enoch Godongwana in his 2023 finances speech. These embrace the under two tax reduction measures for a respective one- and two-year period:

A tax rebate of 25% of the set up value, as much as a most of ZAR 15 000, of rooftop photo voltaic panels from 1 March 2023 (photo voltaic power tax incentive); and

A tax rebate of 125% of companies’ value of funding in renewable power sources reminiscent of photo voltaic, hydropower, biomass, and wind (enhanced renewable power tax incentive).

In April, Treasury and the South African Income Service revealed the draft legislative amendments (the Taxation Legal guidelines Modification Invoice, 2023) to present impact to the tax reduction measures introduced within the 2023 Price range for public remark. Whereas these tax breaks are most actually welcomed, taxpayers are left wanting for numerous causes.

A completely functioning photo voltaic power system doesn’t solely require the set up of rooftop photo voltaic panels — every part, which incorporates inverters and batteries, is essential. Nevertheless, the photo voltaic power tax incentive is restricted to the price of photo voltaic panels solely. Inverters and batteries (which energy the inverters) are usually simply as, or much more, costly than the photo voltaic panels themselves. Treasury suggested that the photo voltaic power tax incentive is aimed toward bringing extra era capability on-line. Nevertheless, any rooftop photo voltaic system which feeds into the grid, as supposedly inspired by the photo voltaic power tax incentive, requires an inverter to transform the direct present (DC) electrical energy (generated by the photo voltaic panels) to alternating present (AC) electrical energy, which is what is required for the power to be fed again into the nationwide electrical energy grid. An inverter is evidently a vital a part of any photo voltaic power system and is thus the sine qua non for qualifying for the photo voltaic power tax incentive. For inverters to not be lined by the photo voltaic power tax incentive is due to this fact unintelligible.

Throughout a digital public workshop held on 22 Could 2023, Treasury recognised that many taxpayers already had inverters and batteries however argued that these didn’t generate extra electrical energy; they “merely consumed electrical energy throughout one interval, saved it after which launched it later“. Treasury then defined that by encouraging the set up of photo voltaic panels, extra energy could be dropped at the grid, and that inverters and batteries had been excluded from the rebate resulting from budgetary constraints. Sarcastically, whereas Treasury doesn’t recognise the need of inverters and batteries for the needs of making use of the photo voltaic power tax incentive, it confirmed the need of those parts for the improved renewable power tax incentive. In the course of the digital public workshop, a priority was raised that the wording of part 12BA, which refers to belongings “for use by that taxpayer within the era of electrical energy” doesn’t cowl inverters and batteries. Treasury mentioned that using the phrase ‘in’ made the availability wider than the precise era a part of the system, and thus contains inverters and batteries as a needed a part of the electrical energy era system. Treasury’s misunderstanding of the workings of an environment friendly photo voltaic power system and its method to combatting South Africa’s power disaster by way of the appliance of the photo voltaic power tax incentive isn’t solely disconcerting but additionally seems short-sighted.

Furthermore, to use for the photo voltaic power tax incentive, the photo voltaic panels should be ‘new and unused’. Treasury defined that using the phrase ‘new’ signifies that the tax credit score can solely be claimed for panels which might be lately acquired. Subsequently, panels which were held in storage for some time earlier than putting in them could be thought of ‘outdated and unused’. On the face of it, it appears as if this qualifying criterion was inserted to forestall taxpayers from claiming a deduction on photo voltaic panels that had been acquired previous to 1 March 2023 however solely put in on or after 1 March 2023. The one clear motive for doing this seems to be value saving on the a part of Treasury.

When one considers the magnitude of the power provide disaster that South Africa is dealing with, in addition to the upcoming local weather disaster, the pecuniary achieve that Treasury seeks to acquire is injudicious and defeats the so-called objective of the photo voltaic power tax incentive. Subsequently, whereas the introduction of the photo voltaic power tax incentive constitutes a transparent indication by the federal government of its dedication to sort out the present power provide disaster and the upcoming local weather disaster, the fiscal conservatism by Treasury could finally be its undoing.

Treasury is anticipated to take the related public feedback under consideration and revise the Taxation Legal guidelines Modification Invoice, 2023 accordingly for additional evaluate.