On 22 February 2022, the Minister of Finance, Gonongwana, while delivering the 2023 Budget Speech at the Cape Town City Hall, announced some new short term solar panel tax incentives meant to encourage a rapid move to renewable energy, increase electricity supply and limit the impact of consistently high fuel prices. These incentives include a substantial tax rebate for businesses launching renewable energy projects and a smaller incentive for private households. Through this incentive, the Treasury said it would be offering R4 Billion in relief for individuals that install solar photovoltaic (PV) panels and R5 Billion to companies through an expansion of the renewable energy tax incentive to encourage private investment to alleviate the energy crisis. 

Solar panel tax incentives for individuals 

Any tax paying individual living in South Africa who is either a PAYE contributor or provisional taxpayer may claim the rebate against their tax liability. PAYE contributors will be able to claim the rebate on assessment during the 2023/2024 filing season while provisional taxpayers will be able to claim the rebate against provisional and final payments. This tax rebate applies to solar PV panels that are brought into use for the period of 1 March 2023 to 29 February 2024.

Individuals that install solar PV panels can claim 25% of the total costs of the solar panels, up to a maximum of R15 000 per individual. For example, if a person buys 10 solar PV panels, at a cost of R4000 per panel (a total of R40 000), that person would be able to claim 25% of the cost up to R15 000, therefore R10 000. Another person may be able to buy 20 panels at a cost of R4 000 per panel (a total of R80 000). The calculation of 25% adds up to R20 000, but he can only claim R15 000.

Individuals will need to meet the following requirements to claim the tax rebate:

• Only brand-new and unused solar panels qualify. This is to ensure that the capacity is in addition to what the country already has in place. Panels can be installed as additions to an existing system or as part of a new system.
• Solar panels should not be installed at business premises but rather installed at a residence that is mainly used by individuals for domestic purposes.
• The solar panels must form part of a system that is connected to the mains distribution of the private residence
• Only solar PV panels with a minimum capacity of 275W per panel (design output) qualify for the tax rebate. Batteries, inverters, diesel engines, fittings, installations costs and portable panels do not qualify
• The installation will have to be verified with a certificate of compliance in terms of the Electrical Installations Regulations, 2009 to ensure safety of the installation and compliance to electric regulations.

Many people might ask the question, why only solar panels and not diesel generators, inverters, batteries and installations costs? It must be noted that diesel generators are often used as emergency back-up, but is not sustainable solution to generate additional power. Diesel generators also increase fuel demand and have negative environmental impacts which would be a distraction to the climate objectives government is committed to, where fiscal instruments like carbon tax play an important role. Furthermore, while an inverter and batteries may be 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. The focus on solar PV panels is to maximize the use of limited government funds to get as much additional generation capacity as possible- and recognized that government will have to focus on a partial rebate of the components that are mostly directly linked to generation. This is why installation costs are also not included either.

There will be no recoupment if you sell your house after having benefited from the incentive. There will, however, be a claw-back of the rebate if you sell the panels themselves within one year after they were first brought into use to counter abuse. If you rent your home or is a landlord, you would still be eligible to install solar PV panels as there is no ownership limitation for the incentive, but only the party that pays for the solar panels may claim the tax rebate. Sectional title holders may claim the tax rebate if the installation is permissible and occupants can install solar panels on their respective sectional unit. A body corporate will not be able to claim this incentive as it is not clear whether many body corporates will be purchasing solar installations instead of using leasing or other options to avoid up-front costs for members. If there is widespread interest in body corporates purchasing and installing solar panels, then payment 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 submitted with SARS. Because there would be some adjustments to ensure that the right people could claim the right amounts. There will be consultation by Government to determine the required approach.

Solar panel tax incentives for businesses

From 1 March 2023, business will be able to reduce their taxable income by 125% of the cost of an investment in renewables. The incentive will be available for two years to stimulate investment in the short terms and there will be no threshold on the size of the projects that qualify

The current incentive allows business to deduct the costs of qualifying investments over a one-or-three-year period, which creates a cash flow benefit in the early years of a project. Businesses are able to deduct 50% of the costs in the first year, 30% in the second and 20% in the third year for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW. Investors in PV projects below 1 MW are able to deduct 100% of the costs 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 threshold on generation capacity. The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.

For businesses with positive taxable income, the deduction will reduce its tax liability. For example, a renewable energy investment of R1 million would qualify for deduction of R1.25 million. Using the current corporate tax rate, this deduction could reduce the corporate tax liability of a company by R337 500 in the first year of operation.