Background to Section 12 L Tax incentive Energy

Background to Section 12 L Tax incentive • Energy derived from fossil fuels have a negative impact on the environment hence a hidden economic cost • Energy efficiency savings are a low hanging fruit towards addressing the problem • Converting old technologies to new energy efficient technology often involves high upfront capital expenditure for long term gains 12 L tax incentive is intended to encourage such investment • 2

Income Tax 101 • Income tax is an annual charge imposed on taxable income. • Current charge on corporates = 28% • In simple terms: TAXABLE INCOME GROSS INCOME EXPENDITURE GROSS INCOME ASSESSED LOSS

• Mechanics of 12 L • • 12 L provides a notional allowance on energy savings, calculated as follows: Ø Determine baseline at start of yr of assessment Ø Reporting period use at end of yr of assessment Ø Rate=45 c/killowatt hour of energy savings (change as per budget 2015 budget) o Greenfield projects baseline constructed from comparable data in the sector o Brownfields baseline adjusted each year based on output achieved for that year for a given energy input Energy savings are measured by a measurement and verification professional who are accredited by the South African National Accreditation System (SANAS) Taxpayer’s can claim allowance on provision of a certificate from the South African National Energy Development Institute (SANEDI) www. sanedi. org. za 4

What type of energy savings can be claimed? Ø Any kind, not just electricity savings Ø NEW Cogeneration Ø • Energy generated from a captive power plant-provided greater than 35% energy conversion rate. What type of energy savings cannot be claimed? Ø Where concurrent benefits are claimable elsewhere Ø • • Miscellaneous information on 12 L renewable sources such as biomass, geothermal, hydro, ocean currents, solar, tidal waves or wind. The allowance is designed to be conservative Who can claim 12 L? Ø It seems any person as defined in the IT Act • From when is 12 L effective 12 L? Ø 12 L is effective from 1 November 2013 Ø Sunset clause for years assessment before 2020 • Where can one find out more? Ø SANEDI website and interpretation documentwww. sanedi. org. za Ø SARS interpretation note Ø 2009 EM Ø Regulation in terms of Govt Notice No R. 971 Ø SATS 50010: 2010 published by the SABS • How far is SARS operationally with 12 L? Ø Tax return is ready for 2014 year of assessment 5

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