The South African government through its Departments of Finance and Energy provide a variety of incentives and rebates to promote energy efficiency by companies. The South African Income Tax Act of 1962 has offered tax incentives since 2009 using section 12i, the Industrial Policy Project Investment incentive for manufacturing-related projects with a 10% energy demand reduction component. In addition the proposed 12L ‘Regulations on the allowance for energy efficiency savings’ is in the process of being promulgated into law. The proposed regulation for 12L sets out the process for determining the quantum of energy efficiency savings, and requirements for claiming the proposed tax deduction, which stipulates a prerequisite that energy savings reports have to be compiled by SANAS (South African National Accreditation System) accredited Measurement and Verification (M&V) Bodies and the savings certified by SANEDI (South African National Energy Development Institute). One of the requirements for an M&V Body to be accredited by SANAS is to have a Registered M&V Professional employed. As from 1 January 2012, SANAS accreditation will also be a prerequisite pertaining to the 12i incentives..
Attach to this that soon carbon taxes will be introduced and companies will be evaluating all opportunities to reduce their tax around energy usage. The new carbon tax which is expected to be promulgated in January 2015 will focus on Scope 1 emissions and cost companies up to 40% of these Scope 1 emissions (tonnes of CO2 multiplied by R120 per tonne). Scope 1 emissions according to the Green House Gas Protocol are those emissions that are from onsite emissions sources (boilers, company owned vehicles, aircon gases, generators, refrigerants) and not electricity.
Therefore, if a company embarks on reducing its energy usage it will by default be reducing its carbon tax liability and also be eligible for a rebate under 12L. The process for claiming a rebate for any year of assessment includes submission of a baseline for the beginning of the period and an M&V plan prepared by an M&V professional. Once approved the adjudicator appointed by SARS will issue an energy savings certificate which can be included with the tax returns for that period. The 12L incentive is still out for comment and the final procedures to be used could change, but ultimately SARS requires an auditable process for tax returns.
The role playing parties in M&V currently is the South African National Accreditation Standards (SANAS) who accredits M&V Bodies and the Council of Measurement and Verification Professionals of South Africa (CMVPSA) who ensures that credible technical requirements are met by M&V professionals.
The above shortly introduces what requirements there are to claim on 12L from SARS, but what does it practically mean for companies and individuals who would like to take advantage of 12L? Firstly for any company to pursue this opportunity it will require a professional to do the work, thus any tax incentive to be claimed must outweigh the professional fees and capital investment required to do the baseline and M&V. Any incentive less than R100 000 would probably not be worth the investment required.
Also these incentives need a counterbalance as this will mean a reduction in income to the South African fiscus. The introduction of carbon taxes is one example of how 12L can be paid for, and smart company managers will be sitting up at night thinking about how best they can counterbalance their carbon emissions taxes with 12L. This is not an easy task and requires professionals with in-depth knowledge on how best to save energy, carbon emissions etc to reduce the one and increase the other.
Lastly, who is going to do the M&V work? Currently there is a dire lack of suitably accredited and qualified M&V bodies and professionals in South Africa which can be utilised to do the required documentation and planning work. If you are interested in getting trained in this subject matter please email email@example.com