More tax relief for businesses to build their own power plants

Government has introduced a R9-billion tax relief programme to reduce the impact of load shedding and support South Africa’s clean energy transition.

The programme was on Wednesday unveiled by finance minister Enoch Godongwana during the 2023 budget speech. Some R4-billion in relief was provided for households that install solar panels (details about that here), while R5-billion was provided to companies through an expansion of the renewable energy incentive.

Godongwana said the tax incentive available for businesses to promote renewable energy would be temporarily expanded to encourage rapid private investment to alleviate the energy crisis.

The current incentive allows businesses 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.

“There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short term,” Godongwana said.

Treasury said businesses are able to deduct 50% of the costs in the first year, 30% in the second year and 20% in the third year for qualifying investments in wind, concentrated solar, hydropower below 30MW, biomass, and solar PV projects above 1MW. Investors in PV projects below 1MW are able to deduct 100% of the cost in the first year.

Expanded

“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,” said national treasury.

The minister said 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 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 R1.25-million.

Read: Tax relief announced for homeowners going solar

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.

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