The tax break for the installation of solar panels at places of residence, announced by President Cyril Ramaphosa during the State of the Nation Address, may be much less than what many taxpayers anticipated would be unveiled in the Budget.
National Treasury provided basic details of the incentive scheme when it released the Budget documents on Wednesday. The information was provided in the form of a guidance note – it is not part of final or even draft legislation. Therefore, the final form of the incentive may change.
It said the fiscus will forfeit tax revenue of R4 billion because of the incentive.
The tax break for individuals who instal solar photovoltaic (PV) panels will be available for only one year, from 1 March 2023 to 29 February 2024. Another limitation is that the incentive does not make specific provision for sectional title schemes.
Individuals will be able to claim a rebate to the value of 25% of the cost of new and unused solar PV panels, capped at R15 000 per individual. This means that a person who buys 10 solar PV panels at a cost of R4 000 per panel (total cost of R40 000) will be able to claim R10 000 (25% of R40 000).
A person who buys 20 panels at a cost of R4 000 per panel (total cost of R80 000) will, as a result of the cap, be able to claim only R15 000, although 25% of R80 000 is R20 000.
Note that the rebate applies only to the PV panels themselves, not to inverters or batteries. It also does not apply to the installation costs.
Installations by landlords or tenants qualify for the rebate, but only the party who pays for the solar panels can claim it.
The following requirements must be met to claim the rebate:
- Only new and unused solar PV panels qualify, “to ensure that the capacity is in addition to what the country already has in place”. The panels can be installed as part of a new system or as an extension of an existing system.
- Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the rebate.
- Other components of a system – batteries, inverters, fittings or diesel generators – and installation costs do not qualify.
- Portable panels do not qualify.
- Solar PV panels must be installed at a (primary or secondary) residence that is mainly used by an individual for domestic purposes.
- The installation must be accompanied by a certificate of compliance (CoC) issued in terms of the Electrical Installation Regulations.
- The solar PV panels must form part of a system that is connected to the mains distribution of the private residence.
PV industry is not impressed
The South African Photovoltaic Industry Association (Sapvia) said the benefit of the scheme is limited, and it will not help households that cannot afford to buy a solar kit.
Business Day quoted Sapvia chief executive Rethabile Melamu as saying that the R15 000 cap translates into a saving on the first R60 000 spent on solar panels, which would not make a meaningful impact on the average household without storage.
“Sapvia is on record indicating that an average household tends to purchase a 5kW hybrid system, including panels and battery storage, which ranges from R95 000 to R200 000 depending on the components used,” Melamu said.
How to claim the rebate
Individuals will be able to claim the rebate if they have:
- A VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
- A CoC evidencing that the solar PV panels were brought into use for the first time between 1 March 2023 and 29 February 2024.
PAYE taxpayers will be able to claim the rebate on assessment during the 2023/24 filing season.
Provisional taxpayers will be able to claim the rebate against their provisional and final payments.
No claw-back if you sell your home
You will not have pay back the rebate if you sell your home after installing the panels, because the panels are likely to remain fixed to the house and used by the following owner – still enabling an expansion in generation, Treasury said.
However, there will be a claw-back of the rebate if you sell the panels themselves within one year after they were first brought into use.
No provision for sectional title schemes
Treasury said that if residents of sectional title schemes are permitted to instal their own panels, the tax incentive will apply to them as it does to other individuals.
However, body corporates are not eligible to claim the tax rebate.
Treasury said it was unclear whether many body corporates will be purchasing solar installations instead of using leasing or other options to avoid up-front costs for members. The government “will be consulting” on this aspect.
If there is widespread interest in body corporates purchasing and installing solar panels, then payment (for example, special levies) for solar installations levied from the occupants would have to indicate the cost of the solar panels separately – as would be the case for any other claimant. The applicable Certificate of Compliance data would also have to be shared with the South African Revenue Service.
“Because there would be some adjustments to ensure that the right people could claim the right amounts, there will be consultation to determine the required approach and documentation,” Treasury said.
Why are generators excluded?
Treasury said the incentive excludes diesel generators because, although they are often used as emergency back-up, they are not a sustainable solution to generate additional power. Diesel generators increase the demand for fuel and have a negative impact on the environment. Including generators would detract from the climate objectives to which the government is committed, where fiscal instruments such as the carbon tax play an important role.
Why are inverters and batteries excluded?
The incentive excludes inverters and batteries because, although they are required to use solar panels, inverters and batteries can be operated without solar panels – in which case they offer no additional capacity to the system, Treasury said.
“The focus on solar PV panels is to maximise the use of limited government funds to get as much additional generation capacity as possible – and recognises that government will have to focus on a partial rebate of the components that are most directly linked to generation. This is why installation costs are not included either,” Treasury said.
Legislation has yet to be finalised
It is important to note that the legislation governing the tax incentive has yet to be finalised and enacted.
The information Treasury has provided is subject to the outcome of the consultative process on the proposal and Parliament’s ultimate decisions on the legislation.
A draft version of the legislation will be published for public comment no later than the publication date of the 2023 Draft Taxation Laws Amendment Bill. The Minister of Finance tables tax bills during the Medium-term Budget Policy Statement in October each year. Parliament considers the amendments after which the president can assent to the amendments – usually by January of the year after the announcement.
Treasury said the aim of its guidance note and coming draft legislation “is to provide as much upfront clarity as possible so that individuals do not feel they need to wait for the tax bills later in the year before making a decision to invest and benefit from the incentive”.