South Africa: Tax Incentives for Solar Installation Should Benefit Those Most in Need

Open-Ed

• The form that any incentive takes is therefore crucial to stimulating off-grid installations.
• Zero-rating VAT for renewable energy components and invertors is a simple option.

In keeping with the upbeat tone of his state of the nation address despite the reality on the ground reflecting little cause for optimism, President Cyril Ramaphosa promised to “unleash businesses and households to invest in rooftop solar”.

Unfortunately, he gave little detail but pointed out that stimulating the rollout of rooftop solar was part of the energy crisis plan he announced in July last year and that the finance minister would outline in the budget how households and businesses would be able to benefit from incentives to do so.

Related news: Everything you need to know about installing a solar PV system in your home

The form that any incentive takes is therefore crucial to stimulating off-grid installations. Zero-rating VAT for renewable energy components and invertors is a simple option. News24 quotes KPMG tax specialist Pravir Jeaven proposing two other forms. One would be to reduce the supply side cost by removing customs duties on solar panels and other components. Another would be to target the incentive to the consumer, by applying grants or additional tax deductions for taxpayers when they file returns. “The latter option may be more favourable for government revenues.”

There are lots of complex issues to navigate to ensure that this is a success for the majority of the country – a half-hearted approach is not likely to make much of an impact and there’s a danger that this benefits only high-income earners.

For example, even if the state comes in at what I’m told would be a very generous 30% of the total cost that may be claimed back, the high costs of rooftop solar still make that prohibitive to most South African households and small businesses. Business Tech reports that Capitec has estimated that the start-up costs to get solar installed and going partially off-grid can range from R150,000 to R350,000. Most people and many small businesses cannot afford even a fraction of those costs.

An important issue to address then is what qualifies? President Ramaphosa spoke only of incentives for rooftop solar solutions but to widen the benefit, the incentive needs to extend to invertors and other battery driven solutions – especially considering that storage plays an essential role during peak consumption hours. It’s imperative that they also qualify because that is where the majority of households and businesses will be able to afford the benefit. Even so, these don’t come cheap, with demand keeping prices elevated. Prices range from about R10,000 to run certain appliances to more than R45,000 to power a full household.

Prices for solar are also currently elevated as demand is already high. If the tax incentive is effective, demand will likely spike further, causing prices to rise further and only stabilising once supply is increased. This is where the opportunity lies to generate a wave of new small businesses.

The important element to get right is to ensure that it is an incentive for all, not just the wealthy. That will bring numerous benefits apart from relieving pressure on the national grid. The spike in demand would open the opportunity for a wave of new small businesses to be created, from installers and drivers to advertisers and tax consultants, while established businesses in this area will have scope to expand, each employing more people. That hits the target on a range of priority issues: easing loadshedding, promoting small black businesses and creating jobs while multiplier effects from the spike in economic activity will flow through to other areas.

It’s no cure on its own to any one of our problem areas but it will make a difference and if supplemented by a policy aimed at stimulating and assisting new start-up SMMEs focused on rooftop solar and invertor solutions, the benefits would be meaningful beyond the immediate priority of addressing loadshedding.

President Ramaphosa also said National Treasury was working on adjustments to the bounce-back loan scheme to help small businesses invest in solar equipment, and to allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to their customers.

Coupled with the move to allow excess power from rooftop solar to be sold to Eskom to feed into the national grid, various elements are falling into place to stimulate off-grid solutions across the country. As always, though, there are some fundamentals to get in place first, primarily a mechanism to enable the feed-in tariff and determining and, importantly, setting the tariff at a feasible level to ensure it is effective.

Those are the measures needed to “unleash” a wave of rooftop installations and trigger the associated economic activity. Apart from making money available to Eskom to purchase diesel, this is probably the surest way of making a meaningful difference to load-shedding levels in the short term.

But if the incentive is not meaningful enough to benefit the majority the impact will be diminished. In that sense, when determining the scale of the incentive, National Treasury needs to balance the costs to the fiscus with the costs to the economy that load shedding is incurring and, one feels, err on the side of boldness.

Author: Busisiwe Mavuso

Busisiwe (@BusiMavuso2) is the CEO of Black Leadership South Africa (BLSA)

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