South African minister of finance, Mr. Mr. Enoch Godongwana presented the much anticipated National Treasury’s annual 2023/24 budget on the 22 February 2023. Of keen interest to us were his policies for "implementing growth-enhancing reforms in key sectors, particularly in energy and transport."
The minsters full speech is available in full here https://www.gov.za/speeches/minister-enoch-godongwana-2023-budget-speech-22-feb-2023-0000
Below are the most significant statements pertaining to energy and carbon tax in South Africa.
ENERGY POLICY
The minister's remarks on energy constituted a set of energy related tax incentives and loan schemes ensured to stimulate private sector involvement in alleviating the energy crisis in the country. These are:
Section 12B Renewable Energy Tax Incentive
From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewable energy.
For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate (27%), this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation.
There will be no thresholds on the size of the projects that qualify, and the incentives will be available for two years to stimulate investment in the short term
Solar Rebate
Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000. This can be used to reduce their tax liability in the 2023/24 tax year. This incentive will only be available for one year.
Energy Bounce Back Scheme
Changes to the Bounce Back Loan Guarantee Scheme are also proposed to incentivize renewable energy, rooftop solar, and address energy-related constraints experienced by small and medium enterprises. This will be done by
Government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
Commercial banks will be permitted to borrow directly from the scheme to facilitate the leasing of solar energy equipment to small businesses.
National Treasury will launch the Energy Bounce Back Scheme in April 2023.
CARBON TAX
Among the notable statements on carbon tax are the following:
Carbon Tax Rate Hike
Effective 1 January 2023, the carbon tax rate increased from R144 to R159/tCO2e on taxable greenhouse gas (GHG) emissions.
The carbon fuel levy for 2023/24 will increase by 1c to 10c/l for petrol and 11c/l for diesel effective from 5 April 2023.
The carbon tax cost recovery quantum for the liquid fuels refinery sector increased from 0.63c/l to 0.66c/l, effective from 1 January 2023.
Carbon Offsets
The utilization period of carbon offsets will be changed to align it to the extension of the 1st phase of carbon tax until 31 December 2025. This will come into effect from 1 January 2023.
ESKOM
A portion of the speech was dedicated to Eskom and how to address its myriad challenges that have led to debilitating load shedding (black outs) conditions for the economy and the country at large. Some of the key proposals include:
Government will take over a portion of Eskom’s debt to ease pressure on the company's balance sheet and to allow it to conduct maintenance required to improve the availability of electricity.
IN CONCLUSION
The improvements to the Section 12B tax incentive are welcome and should spur further private sector adoption of renewable energy. Furthermore, the solar rebate is a nice addition to the available tax incentive schemes for renewable energy.
However, there was only a perfunctory reference to energy efficiency in the budget speech with any allusion to it restricted to a superficially outlined "Just Transition" section. We believe this is a missed opportunity as energy efficiency is an effective way of reducing the energy demand, mitigating carbon emissions, making the economy more efficient and creating jobs. Adopting aggressive energy efficiency measures will help create a margin for Eskom to get its house in order.
Regarding the short term and medium term plans for alleviating the energy crisis through interventions at Eskom, it is not clear how effective these will be in settling the nerves of South Africans. The push to promote renewable energy seems to be the only available short term intervention, one that depends on the participation of the private sector and the effective implementation of policies such as the "Energy Bounce Back Scheme".
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