12L tax incentive saves billions of rands

by Ofentse Sefolo
12L tax incentive saves billions of rands

The government’s 12L tax incentive has delivered over 24 terawatt-hours (TWh) in energy savings, equating to a total gross rebate of R19,9 billion to South African taxpayers since November 2013, according to the South African National Energy Development Institute. The incentive, which is part of Section 12L of the Income Tax Act, enables all energy carriers saving energy to receive tax saving.

The institute says the figures also show a total reduction of 24,479 megatons of CO₂, which is indicating the success of the incentive and its role in creating a local economy based on energy-efficient practices. The total TWh savings have grown from 5,217TWh in 2015, before the rebate was increased from 45c/kWh to 95c/kWh, to 24,727TWh in 2020.

The South African mining and manufacturing industries are at the forefront of the incentive’s energy savings, with both sectors rolling out 69 certified projects each since 2015. The wholesale industry takes third place, implementing 17 Section 12L certified projects.

Drilling down on the cumulative impact per energy carrier, a mix of non-renewable energy carriers accounts for the highest saving of 21 255 624 091kWh and a total rebate of over R17 billion.

South Africa’s mining and manufacturing industries are at the forefront of the incentive’s energy savings.

Section 12L works as follows:
• It provides a tax deduction for all energy carriers, not just electricity, but excludes renewable energy sources
• The 2015 amendments included an increase in the tax allowance from 45c/kWh to 95c/kWh
• Taxpayers can claim savings for an individual project or a combination of projects.
• Improvement of energy use across all energy sources may qualify for a tax allowance.

Regulations in Section 12L of the Act set out the process to be used to claim an allowance for energy savings. A baseline model and report must be compiled by the energy carrier and submitted to the South African National Energy Development Institute (SANEDI) for approval. SANEDI then reviews and oversees the application process of the incentive.

The Carbon Tax, which was introduced in 2019, gives effect to the polluter-pays principle.. It is helping to ensure that companies and consumers take the negative adverse costs of climate change into account in future production, consumption and investment decisions. In turn, this tax continues to fund the Section 12L tax incentive.

SANEDI has also commissioned a review on the full economic, environmental and socio-economic impacts of the Section 12L incentive, with a report due in August 2020.

SANEDI (South African National Energy Development Institute)
Tel: (011) 038 4302
E-mail: barryb@sanedi.org.za
Website: www.sanedi.org.za

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