More clarity needed on tax incentive for solar panels

Government has heeded the public’s call to provide a solar panel incentive to individuals and has agreed to do so in the form of a tax rebate.

In an unusual move, details of the rebate have been set out in the 2023 budget to provide upfront clarity to individuals who want to benefit from the scheme.

Individuals may go ahead and install the solar panels without waiting for the annual tax amendment legislation, which will be published for public comment later in the year.

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Individuals may claim the rebate to the value of 25% of the cost of new or unused solar photovoltaic (PV) panels, limited to R15 000 per individual.

Only the party that pays may claim the rebate. There is a catch. The tax rebate can only be claimed against the individual’s tax liability in the 2023-24 tax year.

Provisional taxpayers will be able to claim the rebate against provisional and final payments.

‘Not bold enough’

Energy expert Chris Yelland said the new tax incentives for solar PV for individuals were “disappointing and way too timid”.

“Only 25% of capex may be offset against taxable income of individuals, and only for FY 2023-24. No VAT or import duty relief for solar PV panels, inverters or battery storage. Not bold enough,” he said on Twitter.

“The details of the new solar PV tax incentives remain unclear, and this needs to be carefully checked and further clarified.”

Beatrie Gouws, head of stakeholder management and strategic development at the South African Institute of Taxation, said a tax rebate cannot result in a refund, hence, if the rebate is greater than the tax liability, it will be limited to the amount of the tax liability.

To claim the rebate, the individual must be able to provide a VAT invoice that indicates the cost of the solar PV panels separately from other items, proof of payment and a certificate of compliance evidencing that the solar PV panels were brought into use for the first time between 1 March, 2023 to 28 February, 2024.

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Panels with a minimum capacity of 275 watts per panel qualify. The solar panel tax rebate is only available for clean electricity generation.

In other words, diesel generators, inverters, batteries and installation costs do not qualify for the rebate.

The reason for this is that inverters and batteries can be operated without solar panels and do not result in additional capacity to the system.

Treasury said the objective of the solar panel incentive is to increase additional generation capacity as quickly as possible.

The rebate is not limited to ownership of the property and may be claimed by renters as well. It is not available for installations on business premises.

A body corporate of a sectional title estate will also not be able to claim this incentive.

Treasury said government will be consulting in regard to how various bodies corporate will be installing and paying for solar installations and collecting the costs from occupants.

If say, in the form of special levies, the cost of the solar panels per occupant would have to be indicated.

‘More clarity’

Dr Rethabile Melamu, chief executive of the South African Photovoltaic Industry Association (Sapvia), said solar panels alone would not protect end users against load shedding.

“The incentive is limited and does not address those households that can’t access instruments for the purchase of solar systems. At best those who install panels will only get up to R15 000 back from their taxable income.

“Based on a 25% cap, this could translate to a solar system of R60 000 which will not make a meaningful impact for the average household without storage. This can get households six to 7kWp [kilowatt peak power output] solar PPV panels without storage.

“We also need more clarity as the rebate seems to incentivise higher tax rate paying people.

“Sapvia is on record indicating an average household tends to purchase a 5kW hybrid system, including panels and battery storage which ranges from R95 000 to R200 000, depending on the components used.

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