Reprieve for taxpayers in demanding times

March 9th, 2016, Published in Articles: EE Publishers, Articles: Vector


Mark Botha

Mark Botha

Business must currently contend with challenges such as the downward growth trend in the Orient, the falling rand-dollar exchange rate and the very real possibility of a rating agency downgrade to junk status for South Africa.

Added to these are the depressed state of the emerging-world economy and the recent approval by the National Energy Regulator of South Africa (NERSA) of a 9,4% power tariff hike.

Yet, all is not doom and gloom. Companies in all spheres of industry may do well to consider the provisions of Section 12L of the Income Tax Act, 1962, which offers businesses and other taxpayers deductions based on energy savings achieved in their day-to-day activities and projects of income generation.

This section came to effect on 1 November 2013 to honour South Africa’s commitments to the 2009 United Nations Conference on Climate Change in Copenhagen and will remain so until 1 January 2020.

While the tax incentives of Section 12K aim to reduce domestic greenhouse gas emissions, Section 12L of the act encourages taxpayers to convert old plant, installations, equipment and processes to new and energy-efficient technologies and systems. These tax deductions were set in March 2015 at R0,95/kWh saved, up 22,5% from the previous R0,45/kWh saved.

A draft interpretation note issued by the South African Revenue Service (SARS) includes in the energy-efficiency measures and equipment that qualify for the deductions projects generating energy from combined heat and power as well as from captive-power plant, where the energy is produced for sole use by the business.

Combined heat and power generation, also known as co-generation, is achieved where electricity or heat is produced from a derivative product created by an industrial process in the production of the core product.

Tenants who do not own this equipment but who maintain approved efficiency measures resulting in savings registered in their name are also eligible for the tax deduction under Section 12L.

Projects which do not qualify for the tax deduction are those which generate energy from renewable sources other than combined heat and power, and captive-power plant whose energy conversion efficiency amounts to less than 35%. Third parties such as contractors employed to manage energy-efficiency projects are also excluded.

To claim these benefits, the taxpayer must register the project with the South African National Energy Institute (SANEDI); appoint a measurement and verification (M&V) professional (accredited, in turn, by the South African National Accreditation System or SANAS) to compile a report showing the energy savings achieved; submit this report to SANEDI and obtain from it an energy-efficiency performance certificate, in that order.

The project producing the energy savings can be registered via the SANEDI website at while the M&V professional will be selected from a list provided by SANAS.

The project’s adjusted baseline must be assessed and submitted to SANEDI for approval before it will issue the energy-efficiency certificate.

On issuance of the certificate for the year under assessment, the project’s registration date will expire and a new project identification number will have to be acquired for each year, even where the same project continues over multiple years.

The SARS draft interpretation note remains open to comment until 18 March 2016.

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