Tax Incentives for Energy Efficiency now open to business

On 8 November 2013, National Treasury published Section 12L putting into operation deductions of energy efficiency savings in terms of the Income Tax Act. Section 12L provides a tax deduction calculated at 45 cents per kilowatt hour or kilowatt hour equivalent of energy efficiency savings for any person that is carrying on a trade during any year of assessment ending before 1 January 2020.

In order to claim this tax deduction an energy efficiency savings certificate will have to be obtained.  This certificate must be issued by an accredited institution or body prescribed by the regulations. The certificate must indicate the following:

• the baseline at the beginning of the year of assessment;
• reporting period energy use at the end of the year of assessment;
• the annual energy efficiency savings expressed in kilowatt hours for the year of assessment;
• full criteria and methodology used to do the calculation of the energy efficiency savings; and
• any other information prescribed by the regulations.

Companies should note that Section 12L applies to savings not just in electricity but in all energy forms – lighting, insulation of certain buildings, upgrade of air conditioning systems and reducing the use of fossil fuels like coal and diesel. 

The institutions involved in regulating and controlling this tax incentive system are the following:

• South African National Accreditation System (SANAS): Accreditation of Monitoring and Verification (M&V) Bodies. The list of bodies can be found on www.sanas.co.za
• Council for Measurement and Verification of South Africa (CMVPSA): A council established to protect the interests of all M&V stakeholders by regulating and registering its M&V Professionals whom perform measurement and verification under the auspices of accredited M&V Bodies. Registered Certified M&V Professionals are listed on www.cmvpsa.co.za
• South African National Energy Development Institute (SANEDI): Evaluate M&V Professional’s energy savings reports and issue tax certificates to companies for submission to SARS to claim Section 12L tax incentives
• SARS: Financial incentive provider 

The Regulations stipulate that those wishing to claim energy efficiency tax incentives need to take the following steps:

1. Formally appoint an M&V Professional who is part of a SANAS Accredited M&V Body.
2. Register with SANEDI for energy efficiency tax allowance claims at http://www.sanedi.org.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.

Source: tax enSight and Green Business Guide