Business, tax professionals and accountants on Wednesday urged the government to extend and expand the solar panel tax incentive for individuals and businesses, saying it would encourage more investment in alternative energy.
In his February budget finance minister Enoch Godongwana announced a tax rebate for individuals for the installation of rooftop solar panels to the value of 25% of the cost of any new and unused solar panels up to a maximum of R15,000 from March 1 2023 to March 1 2024.
The budget also proposed a solar business incentive consisting of a one-off 125% deduction of the qualifying costs for renewable energy projects put into use between March 1 2023 and March 1 2025.
Old Mutual head of tax Nazrien Kader said in a submission to parliament’s finance committee — which is holding public hearings on the draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill, the draft Taxation Laws Amendment Bill and the draft Tax Administration Laws Amendment Bill — that the period of the incentive may not provide a sufficient incentive to taxpayers to invest in solar solutions. She proposed that Treasury consider extending the incentive to March 1, 2025.
PwC tax policy leader Kyle Mandy said that for the incentive to achieve the desired response it would need to be increased considerably and apply to an entire solar system — including batteries, inverters, frames, and installation costs — and not just the solar panels.
“The size of this subsidy is too small to act as an inducement,” Mandy said. “The design of the rebate, by only applying to solar panels, could potentially result in abuse, for example, by loading the cost of the solar panels in a solar system. This will accordingly place an increased compliance burden on Sars, delay access to the rebate, create frustrations for taxpayers and lead to disputes.
“The stated rationale for excluding inverters and batteries is that they can be operated without solar panels adding additional generation capacity. While this is true, it loses sight of the fact that solar panels cannot operate without an inverter as this is required to convert direct current from the solar panels to usable alternating current,” Mandy added.
“When it comes to batteries, these significantly increase the efficiency of a solar system by allowing solar power to be used up to 24 hours a day instead of only 10 hours on average.
“The inclusion of batteries to be charged with solar power during the day and drawn down at night would reduce demand from the grid during the evening peak. While the concern raised that inverters and batteries can be used without solar is valid, this can be easily addressed by making solar panels a prerequisite for the credit.”
Mandy also recommended that the rebate apply to rental or rent-to-own structures.
“Individuals who cannot afford the capital outlay on a solar system are more likely to consider a rental or rent-to-own structure than to acquire their own system. The design of the rebate does not cater for this reality,” he said.
The SA Institute of Chartered Accountants supported the inclusion of batteries and inverters in the incentive. Paul Gering, a partner at audit firm PKF, agreed with the proposal that the incentive apply to the total solar system installed, and for an extension of the period of both the individual and business incentives by one year.
SA Institute of Taxation CEO Keith Engel also argued for solar leases to be included in the incentive. On the business solar tax incentive Engel said the two-year qualifying period was “impractical” for business, given the large scale of their projects.
“Big business can alleviate the energy crisis but large energy projects need time,” he said. It would be possible to sign a contract within the two year period provided but not bring the projects into use.
Engel proposed that the qualifying period be increased from two years to five, provided the taxpayer has entered into a contract to acquire the assets by February 28 2025.
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