Western Cape Business News

Send  Share  RSS  Twitter  03 Dec 2009

POWER SUPPLY: Special Allowance For Energy Savings


Recent Western Cape Business News

As part of its commitment of reducing carbon emissions, the South African government has introduced an incentive to businesses that actively reduce their demand and usage of energy. This takes the form of a notional tax allowance for energy efficiency savings. Companies that put in place sufficient energy saving measures and thereby reduce their demand and usage of energy will qualify. 

At the most recent G20 Summit, South Africa committed to reduce carbon emissions in the hope of reducing the effect of global warming. As part of this commitment government has acknowledged that most of South Africa’s energy comes from a fossil fuel basis which has a negative effect on the environment.  Although current electricity prices are high they do not reflect this damage.

Mohammed Jeewa, Senior Tax Consultant at auditing firm BDO has applauded the South African government’s energy efficiency tax benefit to reduce carbon emissions. “Not only will all energy saving measures have a positive long term effect on the environment but will also have a long term effect on the income of those businesses that make the effort,” says Jeewa.

Saving tools put in place could have an almost immediate impact on the bottom line of a business. Although not currently effective, this amendment has been passed by the government and therefore now is the perfect time to get ready for when it does come into effect. The effective date is still to be determined by the Minister of Finance.

The conversion by taxpayers from old technologies to new, environmentally friendly ones, such as using solar or wind power as an energy source, often involves substantial capital expenditure and the perceived lengthy pay-back periods often discourage businesses from making these changes. To speed up this process government has agreed to make this a more attractive option for businesses through the introduction of this allowance.

Taxpayers carrying on a trade will be entitled to claim a notional allowance for all forms of energy efficiency savings.  This means that businesses can reap the financial benefits of their energy efficiency savings in the same year in which they were implemented.

There are however, criteria attached to this allowance and it is based on a formula which takes into account the level of energy saving during a particular financial year.  It is also dependant on the receipt of an Energy Efficiency Saving Certificate. This certificate will contain the pre-determined energy-use baseline. All criteria and methodology used to determine this baseline must be in terms of the regulations which will be issued by the Minister of Energy. This allowance will be applicable to any year of assessment ending before 1 January 2020.

Green” is the latest buzzword but there have, until now, been very few incentives for businesses to take this to heart. Government is committed to reducing its carbon emissions while not hampering the growth and development of the country. This is one way for the government to incentivise businesses to take it upon themselves to “go green.”

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