The Finance Minister delivered his annual budget speech on 22 February 2023, and did not raise taxes. This was expected, given the state of the economy. The budget instead announced R13 billion in tax relief. Through an expansion of the Income Tax Act’s section 12B renewable energy tax incentive, businesses receive R5 billion and individuals that install rooftop solar panels receive R4 billion. The tax relief package is funded by increased revenue collections, primarily a windfall caused by rising commodity prices.
New rooftop solar tax incentive
Individuals who invest in solar photovoltaic (PV) on their rooftops at a residence used mainly for domestic use are eligible for a tax credit. Portable panels will thus not qualify. Only new and unused solar PV panels qualify, to ensure that the capacity is in addition to what the country already has in place. The solar panels can be installed as part of a new system, or as an extension of an existing system. Further only solar PV panels with a minimum capacity of 275 W per panel (design output) qualify for the tax credit. The solar PV panels must be part of a system that is connected to the distribution board.
The solar panels must be purchased and installed at a private residence, and a VAT invoice must be produced together with a compliance certificate which was issued between 1 March 2023 and 28 February 2024. Thus, the incentive is only available for one year.
Solar PV panel installations by either landlords or tenants are eligible for the tax credit, but only the party who paid for the solar panels can claim the credit.
If residents of sectional title schemes are permitted to install their own solar panels, they will be eligible for the same tax credit as other individuals. However, body corporates are ineligible to receive the tax credit.
Implication − Individuals will be eligible for a tax credit equal to 25% of the price of any new and unused solar PV panels. To prioritise the promotion of additional generation, the tax credit is only available for solar PV panels and not inverters or batteries. The tax credit can be used to offset up to R15 000 of the individual’s personal income tax liability for the 2024 tax year. As an example, a person who purchases 10 solar panels at a total cost of R40 000 can reduce their personal income tax liability by R10 000 for the 2024 tax year.
Recoupment − Individuals will not be required to repay the tax credit if they sell their home after installing solar panels because the panels are likely to remain attached to the home and be used by the subsequent owner, allowing for an expansion in generation. However, the tax credit will be recouped if the panels are sold within a year of their initial installation.
In brief
The tax incentive for individuals is rather modest and unlikely to encourage renewable energy generation. The incentive targets high-income taxpayers. Wealthy taxpayers have already invested in solar. The individual rebate only covers solar PV panels, not inverters or batteries. Individuals must invest R60 000 in rooftop solar panels to reach the R15 000 limit. Placing a limit is not unreasonable. Only registered taxpayers with SARS can receive the incentive, which is a tax credit. It is proposed that section 6C of the Income Tax Act be inserted to include the tax credit.
Author
Muneer Hassan CA(SA)
Tax Consultant, Senior Lecturer in Taxation at UJ and Lecturer on the Gauteng Board Course