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The energy efficiency savings tax incentive (section 12L), which was extended for three more years in the 2019 Budget speech, enables small and large businesses to save as much as 30 percent on their energy bills, while improving their carbon footprint and assisting in reducing the demand for South Africa’s scarce energy resources.

“The current rebate of 95c/kW/* saved on energy consumption has proved to be of great interest to industry, as more and more businesses sign up with us,” explains Barry Bredenkamp, the general manager for energy efficiency at the South African National Energy Development Institute (Sanedi).

“The 12L tax incentive’s objective is two-fold: to encourage energy saving in a constrained capacity environment and to assist in meeting the country’s commitments to reduce carbon emissions over the next few years.”

The incentive allows tax deduction for the saving of gas, coal, liquid fuels or any energy carrier, (excluding renewable energy).

In order to claim the deduction, measurements must be kW/* equivalent. The verified and measured energy efficiency saving must be over 12 consecutive months, known as the implementation/assessment period, which is compared with the prior 12 months of baseline measurement. The baseline measurement and savings are verified and measured by a South African National Accreditation Systems-accredited measurement and verification (M&V) body, which assigns an M&V professional to the project.

In order to apply for the incentive, a company would appoint an accredited (M&V) professional to do an assessment of its business, no matter whether it is a plant, a hotel or normal office premises. (Residential households are excluded from applying for this incentive).

The assessor will submit all the information to Sanedi and from there it would proceed with an evaluation to ascertain whether the claim is in line with the appropriate regulations and standards, and can be approved.

The South African Revenue Service has updated the section on qualifying activities in their interpretation notes, not only to include activities generating energy from combined heat and power, but also any activity that results in energy efficiency savings, given that all other requirements are met and limitations do not apply.

“In some instances, we have seen customers save up to 30 percent on their energy bill and in addition receive a tax allowance on their tax return,” says Bredenkamp. “There is a calculator on our website (www.sanedi.org.za), where one can check the feasibility of applying for the incentive and get an indication of what the benefit will be.

“There have been in excess of 200 applications over the period so far, with many of these being blue-chip South African companies. We are excited that this window of opportunity has been extended for a further three years and we may possibly be able to double the number of applications,” says Bredenkamp. 

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