The best-case scenario for rooftop solar tax breaks in South Africa: expert

Finance minister Enoch Godongwana is widely expected to announce a tax incentive related to rooftop solar during his budget speech this week (22 February).

This follows confirmation from president Cyril Ramaphosa during is State of the Nation Address earlier this month that the government is working on ways to “unleash” private generation among households and businesses in the country to help resolve the ongoing energy crisis.

In his address, Ramaphosa said that the minister of finance will announce how households and businesses will benefit from a tax incentive relating to rooftop solar, and that National Treasury will also look at other measures to boost solar availability for businesses.

While the announcement was welcomed, business leaders warned that the question of how these yet-to-be-announced incentive programmes will work is key to their success.

Business Leadership South Africa (BLSA) CEO Busi Mavuso warned that the incentives need to be as wide-reaching as possible, and not just amount to an empty promise that benefits only a few.

Echoing these sentiments, Lance Collop, partner at boutique tax firm Regan van Rooy, said that the tax incentives need to have a big and immediate impact on taxpayers’ finances, and should put cash back in their pockets.

The worst approach the government could take is to make any tax breaks only come into effect when a property is sold.

Instead, to be most effective, households should be able to claim the cost of rooftop solar equipment – including all related installation costs – as a tax deduction against any form of taxable income, particularly employment income.

He added that employers should also be allowed to withhold less employee tax in cases where their employees benefit from the tax break. “This will ensure that households do not have to wait for their tax return to be submitted and assessed to receive a refund from SARS before they see a cash benefit,” he said.

“Tax breaks that only come into effect when a property is sold, will be completely ineffective.”

Collop said that the tax breaks should also be backdated.

“The minister would do well to backdate any tax breaks in recognition of the fact that so many households have already invested in rooftop solar because of the energy crisis. Households should also be able to claim back any value-added tax paid on such equipment or, even better, the minister should allow suppliers to levy 0% VAT on rooftop solar equipment,” he said.

Broadly, the best case would be:

• Households are able to claim the cost of all solar equipment and installation costs as a tax deduction
• The deduction is against any form of taxable income
• Employers can withhold less employee tax where employees benefit from the break
• The tax breaks are back-dated so those who have already bought and installed solar can benefit
• Households can claim back VAT paid – or equipment is zero-rated for VAT

Collop said that these measures are critical as they come at a time when South Africa’s tax base is already under pressure. He warned that failing to make a significant impact on households’ tax burdens would likely accelerate emigration and the narrowing of the tax base.

According to Mavuso, some questions still linger over the how far the rooftop solar tax breaks will go.  A specific complication is determining what exactly qualifies for the incentivisation.

“Ramaphosa spoke only of incentives for rooftop solar solutions, but to widen the benefit, the incentive needs to extend to investors and other battery-driven solutions – especially considering that storage plays an essential role during peak consumption hours,” she said.

She said that it is imperative that these players also qualify because it would assist the majority of people.

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