Improved tax allowance for photo voltaic power plants

Improved tax allowance for photo voltaic power plantsThe 2015 Taxation Laws Amendment Bill (TLAB) proposes an amendment to s12B of the Income Tax Act, No 58 of 1962 (Act) in respect of the accelerated tax allowance available to photo voltaic (PV) power plants. The proposal, which comes into operation on 1 January 2016, allows for a 100% accelerated tax allowance in respect of embedded PV power plants, generating up to 1MW for self-consumption.

As a general principle and provided the requirements of s12B of the Act are met, a taxpayer is permitted to deduct the cost of qualifying assets (including structures of a permanent nature), used in the generation of electricity from renewable resources, on a 50 / 30 / 20 basis (ie over a three year period). As s12B of the Act currently stands, solar power is classified as a single concept without distinguishing between the sub-categories of photo voltaic and concentrated solar power (CSP). The TLAB proses a split from the current ‘solar power’ reference in s12B of the Act to:

  • PV solar energy exceeding 1MW;
  • PV solar energy not exceeding 1MW; and
  • CSP

In respect of embedded PV solar energy not exceeding 1MW, a new 100% accelerated tax allowance will be available in the year of assessment in which the asset is brought into use. This allowance is aimed at increasing the uptake in these projects. PV solar energy exceeding 1MW and CSP will, however, continue on the existing 50 / 30 / 20 write-off provisions.

Treasury states that the reason for the change is driven by the low environmental and water consumption impact, economies of scale and apparent historical experience within the PV solar energy industry. It is further stated that, unlike large-scale PV solar power projects (those exceeding 1MW), small-scale PV solar power projects do not necessarily require additional investment in supporting infrastructure, such as roads and transmission lines. This statement by Treasury appears counter-intuitive as investments in supporting infrastructure are just as crucial in certain aspects as the renewable energy projects themselves, especially in remote areas within South Africa.

However, the purpose of the change is clearly to promote self-consumption, ie where the power generated is not fed into the national grid. Should Treasurys intended uptake indeed prove to be successful, you can expect the rooftops of corporate offices within South Africa to be adorned with small-scale PV solar plants.

Tax Alert

Ruaan van Eeden
This article forms part of Tax Alert – 28 August 2015: Download PDF