The government will temporarily expand the tax incentive available for businesses to promote renewable energy, to encourage private investment to alleviate the electricity crisis, National Treasury said the 2023 Budget Review.
In addition, National Treasury will amend the bounce-back loan scheme, to help address energy-related constraints.
The current section 12B (of the Income Tax Act) incentive allows businesses to deduct the costs of qualifying investments over one year or three years, which creates a cash flow benefit in the early years of a project.
Businesses can deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and PV projects above 1MW. Investors in PV projects below 1MW can deduct 100% of the cost in the first year.
Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects, with no thresholds on generation capacity.
However, the adjusted incentive will be available only for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
For a business with positive taxable income, the deduction will reduce its tax liability. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25m. Using the current corporate tax rate, this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation.
Treasury said expanding the section 12B incentive will result in the fiscus foregoing tax revenue of R5bn.
Bounce-back scheme to be reworked
The bounce-back loan guarantee scheme will be amended this year to support the roll-out of solar energy for small businesses.
Last year, the government launched the bounce-back scheme administered by banks and other financial institutions and guaranteed by the government for businesses that need finance to recover from the effects of the Covid-19 pandemic.
As part of the energy-related amendments to the scheme:
- The government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis. This means that the government will carry 20% of the loss on defaulted loans, so banks do not have to take the whole loss.
- Commercial banks will be permitted to borrow directly from the scheme to facilitate the leasing of solar energy equipment to small businesses.
- Small businesses that instal solar will be able to borrow finance for working capital.
Treasury said these amendments will be finalised by May.
Sounds intriguing. I look forward to Chris Hart telling us more about it at our City Improvement Project Business Breakfast in Boksburg.
[…] launch comes on the back of an announcement by the South African national treasury to temporarily expand the tax Section 12B incentive available for businesses to promote renewable energy, to encourage […]
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[…] launch comes on the again of an announcement by the South African nationwide treasury to briefly expand the tax Part 12B incentive obtainable for companies to advertise renewable power, to encourage […]
[…] launch comes on the back of an announcement by the South African national treasury to temporarily expand the tax Section 12B incentive available for businesses to promote renewable energy, to encourage […]
If each of the partners in a business with positive taxable income, invest R1 million each, in renewable energy (solar) – can the deduction reduce each partner’s individual personal tax liability. For example, a renewable energy investment of R1 million which qualifies for a deduction of R1.25m – can this deduction be transferred to a partner’s personal income?
I am not sure what you mean by “transferring to personal income”. The partners will be qualify for the section 12BA allowance if the expense is incurred in respect of business activities.