Red flags for South Africa’s new rooftop solar tax break

 ·16 May 2023

Professional services group PwC says that the current policy framework regarding the new rooftop solar incentive does not efficiently promote greater investment in renewable energy.

During the national budget speech for 2023, finance minister Enoch Gondongwana announced two tax relief measures to encourage households and businesses to invest in renewable energy and relieve the strain they put on the failing national grid.

From 1 March 2023, the amendments allow for:

  • Businesses to be able to reduce their taxable income by 125% of the cost of an investment in renewables.
  • Individuals to install rooftop solar panels will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000.

Regarding the rooftop solar rebate, the minister added that it could be used to reduce their tax liability in the 2023/24 tax year and is available for one year.

PwC’s latest Tax Today Report said that although the amendments are favourable to a large degree, there are a handful of complications and confusion within the policy surrounding them, including requirements as to what type of solar panel qualifies for the tax rebate and who may utilise the rebate.

The financial services company said that the current draft of the incentive does not account for the reality that many businesses invest in renewable energy assets, not necessarily using these assets to generate their own electricity but to lease them to customers for electricity generation.

To truly achieve increased private investment in renewable energy, the incentive should be expanded to include owners of qualifying assets who, as part of their trade, lease the assets to individuals or entities for electricity generation from the specified sources, said the company.

It added that this extension would align with the stated policy objective and promote greater participation in renewable energy investment.

According to PwC, under the current framework, concerns around the current legislative design include, but aren’t limited to:

Only the solar PV panels will qualify for the rebate

PwC said that one of the concerns around the incentive is that the rebate does not cover all the complimentary equipment for the solar installation.

“The stated rationale by NT for excluding inverters and batteries is that they can be operated without solar panels adding additional generation capacity,” said PwC.

“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.”

The Treasury’s concern over the independent use of inverters and batteries without solar – which is valid – can be effectively resolved by requiring solar panels as a prerequisite for the rebate program, said PwC.

The group added that this limitation of the rebate could also potentially result in abuse by suppliers of solar systems by overcharging on the panel.

The extent of the incentive is insufficient

PwC believes that the extent of the incentive does not cover the high cost of solar panels. For example, a small 3kW system would cost in the region of R90,000, excluding batteries that are at least R30,000 each, and the cost of the solar panels would amount to another R30,000.

“In terms of the current draft provisions, the rebate would be only around R7,500 for such a system and coupled with a delayed tax benefit (as PAYE taxpayers will only claim the rebate on assessment during the 2023/24 filing season), it is readily apparent that the incentive will be inadequate to induce individuals who would not otherwise have invested in solar power to do so,” said PwC

PwC, therefore, recommends that the maximum rebate of R15,000 be revised, with a 25% rebate being more likely to introduce the behavioural response the South African government is looking for.

It doesn’t account for solar rental

It is common for those who struggle to afford an entire solar system to rent them. However, the current policy framework does not allow for this.

PwC has called on the National Treasury to revisit the design of the incentive to address its shortcoming and make it more effective at achieving the stated goal of increasing renewable uptake.


Read: Ramaphosa’s ‘quick fix’ for load shedding has a major flaw

Show comments
Subscribe to our daily newsletter