While in light of the delays at the Medupi and Kusile Construction Sites the only solution seems to be found in renewable energy power generation, the National Treasury has now recognised that it needs to assist based on the announcement made by the Butcher of Finance, Nhlanhla Nene, in his Budget Speech earlier this year. Therefore – and for the renewable energy sector only – draft tax legislation was released on 22 July to propose the following:
* While prevailing legislation allows currently only for mildly accelerated tax allowances in respect of movable assets used in the generation of energy from solar power, wind, biomass and hydro power of less than 30 megawatts, the maximum tax allowance is granted only over a period of three years, on a 50% – 30% – 20% basis, calculated from the base cost of the asset(s). However, a one year 100% accelerated tax allowance is now being proposed for movable assets used in the generation of electricity from photovoltaic (PV) solar energy of less than 1 megawatt. This is to encourage the uptake of embedded PV Solar Installations for self-consumption. The proposed amendment will apply to the years of assessment commencing on or after 1 January 2016.
* The energy efficiency savings tax incentive is a tax deduction calculated as the kilowatt hours saved (when measuring from a baseline position) multiplied by 45c/kWh. This incentive has been increased to 95c/kWh. The current rate has been deemed insufficient to incentivise energy efficiency projects. The amendment is deemed to come into operation retrospectively, from years of assessment commencing on or after 1 March 2015.
Whilst it was announced in the Budget Speech that the accelerated tax allowance, granted on a 50/30/20% basis, would extend to hydropower generators of more than 30 megawatts, it must be noted that this has not been proposed in the draft tax legislation referred to above.
N.B.: The legislation is only a draft and is subject to changes and approval by Parliament, following public comment and debate.