Income Tax Act of South Africa 1962
The South African Income Tax Act of 1962 has offered tax incentives since 2009 using section 12i, the Industrial Policy Project Investment incentive for manufacturing-related projects with a 10% energy demand reduction component . More recently the proposed 12L ‘Regulations on the allowance for energy efficiency savings’ has been released for public comment by 15 November 2011 and the date for promulgation of the Regulation is still to be announced by the Minister of the Department of Energy (DoE). In terms of these tax allowances, industry will be entitled to claim a deduction for substantiated energy efficiency savings.
The proposed regulation for 12L sets out the process for determining the quantum of energy efficiency savings, and requirements for claiming the proposed tax deduction, which stipulates a prerequisite that energy savings reports have to be compiled by SANAS accredited Measurement and Verification (M&V) Bodies and the savings certified by SANEDI. One of the requirements for an M&V Body to be accredited by SANAS is to have a Registered M&V Professional employed. As from 1 January 2012, SANAS accreditation will also be a prerequisite pertaining to the 12i incentives.
Section 12i incentives are specifically for manufacturing-related projects which includes the energy efficiency component and the incentive is claimable until 2015. Section 12L incentives include all energy efficiency projects that reduce energy use and is claimable until 2020. It is important to note that the tax incentive is available for savings in all energy forms and not only electricity. Under 12i, projects that have already received incentives or grants under other types of schemes will be excluded and such projects need to be ring-fenced and taken out of the equation when calculating and reporting savings for the tax claim. This provision has not been included into 12L but opinions indicate that such may happen.
Other incentives and programmes:
Future incentives and programmes:
Preparing for energy efficiency tax incentives
Identifying projects that might be viable for tax incentives is a good starting point. Sign-on or contract with your potential SANAS Accredited M&V body, who has a Registered M&V Professional employed, as soon as possible because a shortage of these may develop. However, ensure that your project is large enough to make the M&V process and tax incentive financially viable.
Remember, not only large full-scale electrical projects qualify, projects like lighting only, or the insulation of certain buildings on your premises, a major upgrade of airconditioning systems, or drives, even reduced use of fossil fuels like coal and diesel because an implemented energy efficiency measure, will qualify.
Organisations wishing to claim tax incentives
The Regulation released for comment stipulates that organisations wishing to claim energy efficiency tax incentives according to the 12L Regulation should take the following steps:
1) Formally appoint an M&V Professional whom is part of a SANAS Accredited M&V Body. Registered Certified M&V Professionals are listed on the MVCSA website at www.MVCSA.org.za with the SANAS Accredited M&V Bodies listed on the SANAS website at www.sanas.co.za.
2) Register with SANEDI for energy efficiency tax allowance claims at www.saneri.co.za supplying your, and the SANAS Accredited M&V Body’s details.
3) Task the M&V Professional to compile an M&V plan and baseline report in accordance with SANS 50 010 for the energy efficiency savings.
4) Submit the M&V Professional’s M&V plan and baseline report to SANEDI at the beginning of the financial year for which you want to claim the tax incentive.
5) SANEDI will furnish you with the approval for continuance.
6) On the successful completion of the tax incentive approval process SANEDI will issue a formal energy savings certificate.
7) Submit the certificate to the South African Revenue Service (SARS) together with the claim for the tax allowance as part of the customary tax returns.
It should be noted that the 12L Regulation is out for comment and some of the procedures mentioned might change once finalised.
Current M&V service providers and M&V Professionals
Current M&V service providers and M&V Professionals wishing to become eligible for participation in preparing reports for organisations to submit energy efficiency tax claims to SANEDI should take the following steps:
1) M&V Professionals who wish to be registered under the auspices of an Accredited M&V Body should apply to the MVCSA to start the process of evaluation and registration at www.MVCSA.org.za
2) M&V service providers wishing to become M&V Bodies should apply to SANAS for accreditation at www.sanas.co.za.