Draft regulations for energy efficiency tax rebate

Submitted by: Amanda Botes, Friday, October 7, 2011

South African businesses could soon be rewarded for their energy efficiency initiatives through tax incentives. A recent proposed addition to the National Energy Act of 2008, Regulations on the Allowance for Energy Efficiency Savings, documents that businesses engaged in energy efficient initiatives, can apply to the South African Revenue Service (SARS) for a tax break. These regulations were released for public comment on the 16 September 2011 and the public has until the 15 November 2011 to make any comments. 

The regulations correspond with Section 12L of the South African Income Tax Act of 1962 on the allowance for energy efficiency savings which has not yet been implemented. The passing of these regulations would result in the implementation of Section 12L on a date to be determined by the Minister of Finance and will allow tax payers to claim an allowance for energy savings made.

If the regulations are passed what will be the procedure to claim?

Once Section 12L of the Income Tax Act of 1962 has been implemented, in order to receive a tax allowance for energy efficiency savings companies will have to do the following:

  1. A report has to be written up objectively by a Measurement and Verification professional that documents the savings made by the business over the tax year through energy efficiency measures. The report has to be prepared by a body that is accredited to the South African National Accreditation System (SANAS) and be registered with the South African National Energy Development Institute (SANEDI).
  2. After the report has been compiled it has to be submitted to SANEDI. A committee at SANEDI will evaluate the report and certify the energy savings made.
  3. SANEDI will then issue the company with a certificate of energy savings. This certificate will include the baseline energy data at the beginning of the year of assessment, the annual energy efficiency savings in kWh, and the revised baseline energy data at the end of the year of assessment.
  4. This certificate of energy savings must then be presented to the South African Revenue Service (SARS).
  5.  An allowance will then be granted by SARS to the company for that year.

What are the potential savings that a company could make?

At this stage it is not clear what kind of savings can be made as the regulations refer to 12L of the Income tax act.  The Department of Energy has informed Urban Earth that Section 12 L of the Income Tax Act will be amended in the new year, as it refers to the Renewable Energy Feed-in Tariffs of NERSA.  Since these tariffs are falling away in favour of a bidding system, 12L will need to be written with new details on how the allowance will be calculated.

However, in order to provide a sense of scale of the likely savings that a business can accrue a calculation of the potential savings based on the current wording of 12 L is shown below:

According to Section 12L of the Income Tax Act, to work out the savings that a company could make, the energy savings made in that year (in kWh) must be multiplied by the lowest feed-in tariff. This must then be divided by 2 (This number could change according to the Minister of Energy).

Allowance= Energy Savings (kWh) x lowest feed in tariff / 2

 

The allowance is not included in your taxable income and therefore 28% of the allowance figure would go into the pocket of the company.

For example using the lowest feed-in tariff of 0.55 R/kWh listed in the NERSA Review of Renewable Energy Feed - In Tariffs March 2011 for the year 2012, and an example of a company that saved 450,000 kWh in a year, that non-taxable allowance would be

R123,750= 450,000 (kWh) x 0.55 (R/kWh) / 2

This would result in a tax savings of R34,650.00

These savings would have to be offset against the cost of hiring a consultant to compile the energy savings report. Considering that the scale of kWh required to make a substantive saving and consulting costs the regulations are only likely to benefit large scale energy users.

Where can I find an accredited professional to compile the report on my energy efficiency savings?

The Council for Measurement and Verification Professionals of South Africa can be contacted to find a professional that is accredited to the SANAS. Alternatively you can contact SANAS directly.

Conclusion

Climate change and environmental degradation are challenges that South Africa has to start addressing. The South African Government has made the right move here by compiling draft regulations to reward companies that are becoming more energy efficient through the taxation system. However, the process of proving savings might discourage potential participants.

If your company is implementing energy efficiency strategies and would like to benefit from this future rebate, it would be a good idea to make sure that you are able to prove the savings you make through accurate tracking of your electricity usage data.

Amanda Botes