Tag Archive for: Environmental Sustainability

Andrew Stegmann

South African Solar Energy Tax Incentives You May Not Be Aware Of

A little-known amendment to the Income Tax Act allows for depreciation in the year of commissioning of the full cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations.

South Africa’s government, energy regulator and Eskom have often been criticised for obstructing the introduction of distributed, small-scale embedded generation (SSEG) which would help businesses to cut costs and ensure the stability of their power supply during load shedding.

But in fact, there are significant and far-sighted tax breaks which have been put in place by National Treasury to encourage and incentivise business owners to install their own generation in the form of grid-tied, rooftop or ground-mounted solar PV systems on buildings, parking lots, warehouses, factories and farms.

Accelerated depreciation allowances

From 1 January 2016, a little-known amendment to Section 12B of the Income Tax Act (Act 58 of 1996) allows for depreciation in the year of commissioning of the full (100%) cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations.

The capital depreciation allowances for solar PV systems greater than 1 MW remained unchanged in the January 2016 amendment to the legislation, which continues to allow full depreciation over three years. This permits depreciation of 50% of the capital cost in the year of commissioning, 30% in the subsequent year, and 20% in the third year.

The accelerated depreciation allowance for solar PV systems applies whether they are installed for the business by contractors or developers, or paid for by the business in a credit sale agreement (as defined in Section 1 of the Value-Added Tax Act) — either upfront in a single payment or in multiple payments over an extended period.

The cost of the solar PV system allowed for accelerated depreciation includes its full direct capital cost, including design and engineering, project planning, delivery, foundations and supporting structures, solar PV panels, AC inverters, DC combiner boxes, racking, cables and wiring, and installation. Finance costs are excluded.

This allowance was confirmed in a binding private ruling by SARS dated 11 October 2018 (BPR 311) in respect of an application by a private company in South Africa to clarify the deductibility of the capital expenditure incurred to install solar PV systems at a number of sites owned and leased by the applicant. The systems were being installed to reduce the company’s electricity costs.

The improved business case

Whether paid for upfront after commissioning, or in multiple payments over an extended period, the benefits of this tax incentive to business owners, particularly for solar PV systems of less than 1 MW, are significant.

Where the company tax rate is 28% and payment is upfront, a 100% tax-deductible depreciation allowance in the year of installation and commissioning will result in a 28% nett discount on the purchase price of the system at the end of the tax year.

This significantly affects and reduces the payback period of a solar PV project of less than 1 MW.

Better still, when paying for the same solar PV system on a credit sale agreement through multiple payments over an extended period, the transaction can be cash-flow positive for the business over the lifetime of the solar PV plant in all but the first months to the end of the tax year during which commissioning takes place.

With these significant tax incentives and the rapidly rising price of grid electricity, the business case for installation of grid-tied, rooftop and ground-mounted solar PV is fast becoming a no-brainer.

Awareness of the incentives

What is most surprising, however, is how few business-owners and companies are aware of these tax breaks, which can make such a positive impact on their cash flow and bottom line.

This lack of awareness is perhaps a result of the difficulties faced in accessing relevant information on the subject from SARS itself.

For example, efforts to simply download or view the up-to-date amended Section 12B of the Income Tax Act from the SARS website and the public internet proved fruitless. Similarly, no response or even acknowledgement of receipt was received to a query sent to the SARS media desk at sarsmedia@sars.gov.za.

Only after a time-consuming search and a paid subscription to a private tax information service provider was this possible.

In an article in Engineering News on 14 August 2019, entitled “Time to end silence on renewables misinformation — SAPVIA chair”, the new chairman of the South African Solar Photo-Voltaic Industry Association (SAPVIA), Wido Schnabel, said:

“The organisation will become more assertive in outlining the benefits of solar for South Africa and in correcting some of the prevailing misperceptions about the role of variable renewable energy in the country’s future electricity system.”

The tax incentives available to businesses for the installation of solar PV systems is certainly something that SAPVIA and other related industry associations should be “shouting from the rooftops” in the interests of their members, as well as those of developers, installers and suppliers of solar PV systems, components and services.

The challenge

Businesses which have installed solar PV in the 2018/19 tax year, or are about to do so, stand to benefit substantially. The Council for Scientific and Industrial Research (CSIR) estimates that there was close to 400 MW of installed solar PV in the country at the end of 2017 and that up to 200 MW was installed the following year. With a wider understanding of the business case, this could be much higher in future.

Most of these installations are less than 1 MW — which is all that most private businesses require across a wide range of sectors of the economy, including manufacturing and retail.

If only the various arms of government, business, labour and communities were on the same page and working with a common purpose to bring the benefits of SSEG to the productive economy and the environment, to address the current electricity and water supply constraints, and to facilitate economic growth and the creation of quality jobs.

This article was written by Chris Yelland (investigative editor at EE Publishers) and Mariam Isa (a freelance journalist).

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: Mariana Proença [1], [2].

Andrew Stegmann
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Japan Invests $1.8 Million in Sustainable Plastic Alternatives Project in South Africa

The Government of Japan and the United Nations Industrial Development Organization (UNIDO) have signed a funding agreement for a project to support a transition from conventional plastics to sustainable alternatives in South Africa.

The Government of Japan announced the funding support of US$1.8m for the UNIDO project during the G20 Osaka summit in June when the Prime Minister of Japan, Shinzo Abe, held a summit meeting with the President of the Republic of South Africa, Cyril Ramaphosa. The initiative supports the G20’s Blue Ocean Vision which aims to reduce additional pollution by marine plastic litter to zero by 2050.

There are ongoing efforts to develop a local bioplastic industry in South Africa. The South African Bioplastics Forum was established in 2016 as a result of a joint initiative of the Department of Higher Education, Science and Technology (DHEST), the Council for Scientific and Industrial Research (CSIR) and Plastics SA. The country has large amounts of sugar cane bagasse and other biomass feedstocks suitable for bioplastics; and an emerging bioplastics industry has the potential to create new jobs.

UNIDO will work with the CSIR to develop an action plan to strengthen the capacity of local industry to manufacture alternative materials, and build up capacities for plastic recycling.

Recently, bio-degradable plastics have gained attention as one approach to deal with the scourge of plastic pollution. However, when bringing new materials onto the market, particular attention needs to be paid to ensuring that the overall environmental footprint is not increased and that new types of waste are not created that cannot be recycled and that increase the amount of waste; or hindering efforts to increase circularity. The project will help to assess all possible scenario and choose appropriate material for South African contexts, and will suggest necessary steps needed to set up an enabling environment.

At the project launch ceremony, Japan’s Ambassador to South Africa, Norio Maruyama, said that the signing ceremony marked the concrete achievement of what was discussed at the G20 in June 2019. He emphasized the importance of the collaboration of South African companies in the project.

Deputy Minister Nomalungelo Gina of the Department of Trade and Industry (the dti) referred to the key objectives of South Africa’s National Development Plan, and said “The dti welcomes the support by the Japanese government and the partnership between UNIDO and the CSIR, since biodegradable plastics are just being introduced locally.”

The CSIR representative, Khungeka Njobe, said, “We look forward to partnering with government and industry in addressing the very important issue of waste plastic.”

Khaled El Mekwad, UNIDO Representative, said, “Such an initiative will be a model of good practice which can be disseminated to other countries in the SADC region. The experience acquired by South Africa could be extended to neighbouring countries where the triangular cooperation model with UNIDO and Japan may be replicated and adapted to the local development set-up.”

Trudi Makhaya, Economic Advisor to President Cyril Ramaphosa, welcomed this initiative. She said, “We hope that from this partnership there is agreement that there will be a lot of innovation but also a lot of practical applications of the innovations to new industries and new forms of economic activity that are inclusive, that take communities along, and that ensure that this new economy does not reproduce some of the flaws of the past.”

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: Brian Yurasits [1], [2].

Andrew Stegmann

New South African Carbon Tax Signed Into Law; Effective June 1st

South African President Cyril Ramaphosa has signed the Carbon Tax Act into law and it will come into effect on June 1, the National Treasury said on Sunday.

The Act was gazetted on May 23, together with the Customs and Excise Amendment Act, the Treasury said in a statement.

“Climate change represents one of the biggest challenges facing humankind, and the primary objective of the carbon tax is to reduce greenhouse gas (GHG) emissions in a sustainable, cost effective, and affordable manner. Government has outlined its strong commitment to play its part in global efforts to mitigate GHG emissions as outlined in the National Climate Change Response Policy (NCCRP) of 2011 and the National Development Plan (NDP) of 2012,” the Treasury said.

The Carbon Tax Act gave effect to the polluter-pays principle for large emitters and helped to ensure that firms and consumers took the negative adverse costs (externalities) into account in their future production, consumption, and investment decisions.

Firms were incentivised to adopt cleaner technologies over the next decade and beyond. The carbon tax would initially only apply to scope one emitters, from June 1 to December 31, 2022, and the second phase from 2023 to 2030.

The World Resources Institute and World Business Council for Sustainable Development’s GHG Protocol Corporate Standard classifies a company’s GHG emissions into three ‘scopes’. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. Product life cycle emissions are all the emissions associated with the production and use of a specific product, from cradle to grave, including emissions from raw materials, manufacture, transport, storage, sale, use and disposal.

The design of the carbon tax also provided significant tax-free emission allowances ranging from 60 percent to 95 percent in this first phase. This included a basic tax-free allowance of 60 percent for all activities, a 10 percent process and fugitive emissions allowance, a maximum 10 percent allowance for companies using carbon offsets to reduce their tax liability, a performance allowance of up to five percent for companies reducing the emissions intensity of their activities, a five percent carbon budget allowance for complying with the reporting requirements, and a maximum 10 percent allowance for trade exposed sectors.

“The introduction of the carbon tax will also not have any impact on the price of electricity for the first phase. This will result in a relatively modest carbon tax rate ranging from R6 to R48 per tonne of CO2 equivalent emitted… to further provide current significant emitters time to transition their operations to cleaner technologies through investments in energy efficiency, renewables, and other low carbon measures,” the Treasury said.

A review of the impact of the tax would be conducted before the second phase, after at least three years of implementation of the tax, and would take into account progress made to reduce GHG emissions. Future changes to rates and tax-free thresholds in the Carbon Tax would follow after the review, and be subject to the normal transparent and consultative processes for all tax legislation, after any appropriate Budget announcements by the Minister of Finance.

The 2019 Customs and Excise Amendment Act and Memorandum on the objects of the Act contained provisions related to the administrative arrangements for the collection of carbon tax revenues by the South African Revenue Service (SARS).

“It was split from the Carbon Tax Act as a separate Act for technical legal reasons related to money bills not containing administrative provisions in terms of section 77 of the Constitution,” the Treasury said.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: Roman Khripkov [1], [2].

Andrew Stegmann

New Research Study Looks to Empower Namibian Communities to Champion Environmental Conservation

Namibian Environmental Awareness Training (NEAT) has just launched a three-month research project in the Kunene region in northwest Namibia to understand the relationship and interactions between rural communities and the regions’ iconic nature and wildlife. This study will allow NEAT to develop tailored environmental education programmes for schools and communities, to empower them to actively engage in and benefit from nature conservation.

The Kunene region is one of Namibia’s last wildernesses and home to rare desert-adapted elephants, rhinos and lions, as well as numerous other endangered species. Himba, Herero, Damara, San people and many other indigenous communities also live in the region, often in remote villages and in direct contact with nature and wild animals.

Rural livelihoods often depend on natural resources and are affected by human-wildlife conflict or environmental disasters such as droughts. Wildlife populations are also under pressure, facing threats from habitat loss and illegal poaching. NEAT’s research and education programme will address these issues together, recognising that human prosperity and biodiversity conservation are inextricably linked.

NEAT started the research study on Sunday, 3rd March 2019. Over the coming three months, a team of four conservationists and educators will visit eight different communities from across the entire Kunene region and interview adults, children and school teachers. Two experienced UK-based scientists will assist with data analysis. The results will be shared with Namibian school directors and the Minister of Education, who have already expressed their interest in this study.

The project is led by NEAT founder Steven Maseka, an award-winning Namibian environmentalist who previously worked in Namibia’s world-renowned Community Based Natural Resources Management programme and featured in the 2018 BBC documentary Pangolins – The World’s Most Wanted Animal.

The first phase of the project is supported by crowdfunding, and you can help immensely by donating here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], Richard van Wijngaarden [2].