Renewable tax breaks for businesses

According to the minister, from 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables.

“There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short term,” he said.

The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a
project.

Businesses are able to deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW. Investors in PV projects below 1 MW are able to deduct 100% of the cost in the first year.

Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable energy projects with no thresholds on generation capacity.

The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.

“For a business with positive taxable income, the deduction will reduce its tax liability. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate, this deduction could reduce the corporate income tax liability of a company by R337,500 in the first year of operation,” Treasury said.