After much discussion, the South African government has introduced a financial incentive for the installation of solar panels. While some individuals have proposed alternative options, this incentive provides an opportunity for transitioning to solar energy.
However, it is important to note that various restrictions apply to this tax break, as is common with most incentives. We advise interested parties to review these limitations and restrictions carefully before purchasing a solar backup system.
How the Tax rebate works
Individuals who pay personal income tax are eligible to claim a rebate of 25% on the cost of new and unused solar photovoltaic (PV) panels, up to a maximum of R15,000. This tax benefit only applies to permanent solar panels with a minimum capacity of 275W, which must be first used between 1 March 2023 and 29 February 2024.
The rebate does not cover other components of a backup power system or portable PV panels. To claim the rebate, a VAT invoice indicating the cost of solar panels, proof of payment, and a certificate of compliance showing first use between the specified dates are required. PAYE taxpayers can claim the rebate during the 2023/24 filing season, while provisional taxpayers can claim it against provisional and final payments. Another incentive applies to solar installations at business premises.
Reading between the lines
Although a tax incentive of R15,000 for purchasing new solar photovoltaic (PV) panels may seem appealing, it is important to consider that this only covers a portion of the total cost. To qualify for the maximum rebate, customers must purchase solar panels worth R60,000 or more, in addition to spending on installation, fittings, batteries, and inverters. While the cost of solar panels is relatively low, the price of inverters and batteries makes up the bulk of the investment.
For example, an 8kVA hybrid inverter from Deye costs R45,579.00, and batteries that store enough energy for evening use could cost the same or more. Furthermore, installation fees and other expenses will also apply. It is worth noting that this tax benefit is only available during the 2023/24 tax filing period.
Although the incentive is welcomed, only a small percentage of South Africans can afford such a significant investment. Those interested in installing solar systems may want to consider discussing financing options with their financial advisor, banker, or broker. Lastly, it is important to note that currently, selling surplus energy to the grid is only possible in the Western Cape.
What About Your Business?
Businesses can also benefit from investing in renewable energy by reducing their taxable income, but the structure for this incentive differs from the personal rebate.
Businesses investing in renewables can deduct the costs at 125% of the investment’s total cost, with no generation capacity thresholds. Previously, companies could only reclaim costs over three years and had limited generation capacity. This incentive is only applicable to investments first brought into use between 1 March 2023 and 29 February 2024.
The Shift to solar
Investing in solar energy is appealing as Eskom’s electricity generation may not improve in the short term. Although the initial investment for a solar system is significant, it can rapidly decrease your monthly electricity bill, and you may be able to sell excess power to the grid in the future. Additionally, having an inverter as part of the system serves as a surge protector, protecting your electronics and appliances.
A reliable backup power system provides uninterrupted power, saving you from costs such as food spoilage during power outages, damage to property, and maintenance expenses. Solar power systems are also quieter than generators, have no fumes, and are low maintenance. By reducing carbon emissions, utilizing solar energy is a cleaner energy source than coal-fired power plants and improves overall energy security. It eliminates the need to keep track of load-shedding schedules, freeing up time for other activities.
However, before purchasing any solar products, ensure that you are allowed to install PV panels by consulting relevant authorities.