Many economic commentators have said that a key focus of Finance Minister Enoch Godongwana‘s Budget will be the tax incentives for solar.
MARK Boshoff, the head of transformation and climate resilience strategy at Nedbank, said this week that he had no clue what tax incentives for installing solar panels at homes and businesses Finance Minister Enoch Godongwana would unveil in his Budget on Wednesday.
In his State of the Nation Address (Sona) this month, President Cyril Ramaphosa declared the ongoing energy crisis a national state of disaster and that he would be appointing a new minister of electricity dedicated to ending load shedding.
Ramaphosa also promised a tax incentive for rooftop solar panels to help households and businesses afford solar systems.
He said the country would proceed with the roll-out of rooftop solar panels and that the minister of finance would outline how households would be assisted and how businesses will be able to benefit from a tax incentive.
Boshoff, speaking at a Nedbank round-table discussion on Monday, said that he, like the rest of the country, was waiting for details as industry had not been consulted so far.
“The finance minister is going to have his work cut out for him to find a model that works in this economic environment,” he said.
The country now estimates at least 250 days of load shedding in 2023, up from 100 previously forecast, following 157 days of power cuts in 2022.
Many economic commentators have said that a key focus of Godongwana’s national Budget will be the tax incentives for solar.
Buying diesel for generators comes at a prohibitive cost, so companies and consumers are looking at the affordability of installing solar to mitigate the knock-on effects of the power crisis in South Africa.
And while Eskom has spent billions on diesel, so too have companies, with many JSE-listed companies detailing the diesel spend on their trading updates.
For example, Pick n Pay said this month it had spent nearly R350 million year-on-year on diesel to run generators in the first 10 months of its year in a bid to counter load shedding. Dis-Chem reported on Friday that its diesel costs across its stores increased 54% over the past six months, while its diesel bill came to R36m as it tried to mitigate load shedding in its stores.
JSE-listed companies too are listing their solar initiatives in their financial updates and plans for the future to stabilise their cost base as trust in state-owned utility Eskom is at an all-time low.
And while big companies are counting the costs of load shedding, small businesses teeter on the edge of ruin, and the average South African faces increased costs such as steeper food prices.
However, finance is available for the purchase of solar from many financial services providers. It does not have to be paid in one lump sum.
For instance, Boshoff outlined Nedbank’s solar financing, with various packages.
He explained that Nedbank has lengthened the repayment period up to 10 years. It takes seven or eight years to pay the equipment off. The bank structures the repayments so that they equate to or are less than the savings you make on electricity. No deposit is required. It is asset-based finance, similar to buying a motor car.
He also explained the current tax regime for renewables, including solar.
Currently, Section 12B of the Income Tax Act meant you no longer needed a licence up to 100 megawatts.
Any business that implements or installs solar on their premises, and it is reflected on their balance sheet, is entitled to an accelerated depreciation allowance of 100% in the first year if it is under 1MW.
Everything over 1MW is accelerated appreciation and allows for a deduction on a 50|30|20 basis over three years in respect of any machinery, plant, implement, utensil or qualifying asset owned by the taxpayer.
The caveat was that it could only be claimed if you have taxable income that can cover it. If you don’t have taxable income, you can postpone it to the following year, he said.
Boshoff said, “You also have the VAT credit refund for capital, so if you are a small business and you are doing it in the first year under 1MW, you can get 115% back on your installation in the first year.
“I always ask the question why businesses aren’t running for this because in the end the bank would have to give a year loan to bridge that acceleration wear and tear being allowed, but it is dependent on taxable income being there, so it could be longer,” he said.
Boshoff said, “How do I think the government can help with this allowance? They are saying it has to be on business up to a R100 million turnover. But I don’t think the problem is at that level. The problem is much lower: your informal sector, your small businesses and individuals. If we could assist this sector the government would get a better traction on this.”
ECONOMY
And while solar solutions are on the table, load shedding has become a wrecking ball to the local economy.
As the SA Reserve Bank hiked interest rates 25 basis points last month to 7.25%, Governor Lesetja Kganyago said the bank now forecast GDP growth of only 0.3% for 2023 as a result of severe load shedding and other logistical constraints.
And data from the SA Chamber of Commerce and Industry, released this month, showed business confidence in South Africa fell from a more than seven-year high in January mainly due to the adverse effects of the worsening power crisis, after gaining strong momentum towards the end of 2022.
If this was not enough, Fitch Ratings agency also said that the power crisis was the most acute aspect of South Africa’s current economic difficulties.
“The further deterioration of electricity supply goes beyond our base case and presents downside risks to our forecast from December that economic growth will average 1.1% in 2023,” said Fitch’s head of Africa sovereign ratings, Jan Friederich.
– BUSINESS REPORT
