Details on the tax benefits for investing in renewables – Budget 2023

By Alec Hogg

The incentives, which are worth an estimated R9bn, kick in from the beginning of next month (March 2023)

  • Businesses will be able to immediately write back a full 125% of the cost of an investment in renewable energy production. Also, the old cap of 100MW has been abolished with no threshold on the size of the project that qualifies for this 125% investment write-back against taxable income. This is an acceleration of the existing 12B tax incentive for companies which is restricted to a 100% write-off staggered over three years, with 50% of the costs to be deducted in Year One; 30% in the second year and 20% in Year Three. The incentive is only allowed for investments brought into use for the first time between March 1, 2023 and 28 February 2025. The example used by Treasury in its documents refers to an investment of R1m in a renewable facility qualifying for a R1.25m deduction from the company’s taxable income. This translates into an immediate R337 500 reduction in the business’s tax liability – ie the State would pay 33.7% of the cost of the installation.
  • The benefit for individuals is for both new and used solar panels – but it does not extend to inverters or batteries as the intention is to bring fresh power into the system. Those who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, a tax deduction up to a maximum of R15 000, in the 2023/24 tax year. The incentive is only available for panels installed between 1 March 2023 and 29 February 2024. The example used is for an individual who buys 10 solar PV panels for R40 000 who can reduce their personal income tax liability by R10 000 – ie the taxman pays a quarter of the cost. By those calculations the benefit maxes out at the cost of panels in an installation that are worth R60 000.
  • Government is also guaranteeing solar-related loans for small and medium enterprises on a 20% first-loss basis in what it calls the Energy Bounce Back Scheme which will launch in April 2023.

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