Accelerated tax allowance
Comment

The Taxation Laws Amendment Bill proposes an amendment to Section 12B of the Income Tax Act (58/1962) in respect of accelerated tax allowance available to photovoltaic (PV) power plants. The proposal, which will come into force on January 1 2016, allows for a 100% accelerated tax allowance in respect of embedded PV power plants generating up to 1 megawatt (MW) for self-consumption.

Accelerated tax allowance

If the requirements of Section 12B of the Income Tax Act are met, a taxpayer is permitted to deduct the cost of qualifying assets (including permanent structures) that are used in the generation of electricity from renewable resources, on a 50%-30%-20% basis (ie, over a three-year period). As Section 12B of the Income Tax Act currently stands, solar power is classified as a single concept without distinguishing between the subcategories of PV and concentrated solar power (CSP). The Taxation Laws Amendment Bill proposes for the reference to 'solar power' in Section 12B to differentiate between:

  • PV solar energy exceeding 1MW;
  • PV solar energy not exceeding 1MW; and
  • CSP.

In respect of embedded PV solar energy not exceeding 1 mw, a new 100% accelerated tax allowance will be available in the year of assessment in which the asset is brought into use. This allowance is aimed at increasing uptake in these projects. However, PV solar energy exceeding 1 mw and CSP will continue to be subject to the existing 50%-30%-20% write-off provisions.

Comment

The National Treasury has stated that the change is driven by the low environmental and water consumption impact, economies of scale and experience within the PV solar energy industry. It has further stated that unlike large-scale PV solar power projects, small-scale PV solar power projects do not necessarily require additional investment in supporting infrastructure, such as roads and transmission lines. This statement appears counterintuitive, as investments in supporting infrastructure can be just as crucial in certain regards as the renewable energy projects themselves, especially in remote areas in South Africa.

However, the purpose of the change is clearly to promote self-consumption (ie, where the power generated is not fed into the national grid). Should the National Treasury's intended uptake prove successful, small-scale PV solar plants can be expected to adorn the rooftops of corporate offices across South Africa.

For further information on this topic please contact Ruaan van Eeden at Cliffe Dekker Hofmeyr Inc by telephone (+27 11 562 1000) or email (ruaan.vaneeden@dlacdh.com). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.

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