The 2023 Budget provides tax relief totalling R13 billion to support the clean energy transition, increase electricity supply and limit the impact of consistently high fuel prices. This proposal aims to provide R5 billion in tax relief for companies through an expansion of the renewable energy incentive as an attempt to address the current electricity crisis.
Current incentive
The current renewable energy tax incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period (depending on generation capacity), creating a cash flow benefit in the early years of a project.
In short, section 12B entitles a taxpayer to an income tax deduction equivalent to the cost of any machinery, plant, utensil, implement, or article (qualifying assets) provided the following requirements are met:
i) The qualifying assets are owned by the taxpayer; and
ii) brought into use by the taxpayer for the first time and used for trade in generating various forms of renewable electricity.
Where the qualifying asset produces photovoltaic solar energy not exceeding 1 megawatt, the entire cost of the qualifying asset may be deducted in the year of assessment in which the qualifying asset is brought into use.
Producing more than 1 megawatt of photovoltaic solar energy results in the cost of the qualifying asset being deductible over three years as follows:
i) 50 per cent in year 1;
ii) 30 per cent in year 2; and
iii) 20 per cent in year 3.
Expanded incentive
In terms of the expanded incentive, businesses will be able to claim a 125 per cent deduction in year one for all renewable energy projects without the imposition of any threshold on generation capacity. This incentive will be available for investments brought into use between 1 March 2023 and 28 February 2025.
More likely than not, section 12B of the Act will be amended to make provision for this increased deduction rather than a new legislative provision be enacted.
Based on previous legislative cycles, we can expect more certainty when the first draft versions of the envisaged legislative amendments are released, generally around July each year. However, with an effective date of March 2023, we hope to obtain more clarity on this soon.