Tax Incentives
South African
Solar Energy Tax Incentives
The 12B Tax Allowance is ideally targeted at Shopping Centers, Business Premises, Farms, Small Manufacturing Plants and Properties with large residential roof space.
The 12B Tax of the Income Tax Act provides for accelerated capital allowance in respect of specific assets owned and used by the taxpayer in the generation of electricity through wind power, solar energy or hydropower to produce electricity of 30 Mega Watts.
Accelerated Depreciation Allowances
From 1 January 2016 Section 12B of the Income Tax Act (Act 58 of 1996) allows for depreciation in the commissioning of the full (100%) cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations.
The capital depreciation allowances for solar PV systems greater than 1 MW remained unchanged in the January 2016 amendment to the legislation, which continues to allow full depreciation over three years. This permits depreciation of 50% of the capital cost in the year of commissioning, 30% in the subsequent year, and 20% in the third year.
The accelerated depreciation allowance for solar PV systems applies whether they are installed for the business by contractors or developers, or paid for by the business in a credit sale agreement (as defined in Section 1 of the Value-Added Tax Act) — either upfront in a single payment or in multiple payments over an extended period.
The cost of the solar PV system allowed for accelerated depreciation includes its full direct capital cost, including design and engineering, project planning, delivery, foundations and supporting structures, solar PV panels, AC inverters, DC combiner boxes, racking, cables and wiring, and installation. Finance costs are excluded.
How is this Beneficial?
Business / company’s tax in South-Africa is 28%. With this incentive, you can deduct the value of your new solar power system as a depreciation expense from your company’s profits. This means that your company’s income tax liability will be decreased by the same value as the value of the installed solar system. This reduction can also be carried over to the next financial year as a deferred tax asset.
This is a direct saving of 28% on the purchase price from day one on the solar system!
The financial ROI model of such a solar power system looks very attractive. If a system is bought cash, the ROI would be 3-4 years and if it’s on a loan, the ROI would be 4-5 years, depending on the local municipality kWh tariff billing rates.