12 – L Energy Efficiency Tax Incentive – A Joule’s Worth!

On 1 November 2013 a new tax deduction to incentivise companies to make the shift to energy efficiency was gazetted and is now effective.  I attended a workshop hosted by SANEDI (South African National Energy Development Institute) the administrators of the new regulation in March 2014.  Representatives from SARS, DoE, SANAS and SANEDI presented papers explaining the What, Why and How of the application and approval process to a large audience.  Based on the questions being asked it was clear that the workshop had brought energy efficiency experts with a wide range of specialist interests together with tax consultants and accountants. Could this be an exciting new chapter for energy efficiency and a shift to environmental sustainability!

What is the 12 – L Tax Deduction Allowance

A legal expert from SARS introduced his presentation by stating that this tax allowance was designed to incentivise the efficient use of energy by companies and industry up until the January 2020 tax year.  Efficient use of all energy sources are included – oil, coal, electricity & gas – but not efficiencies achieved through generation by wind or PV!   Energy efficiencies through behavioural change are also included.  A point of interest – the 12-L tax regulations are unique globally and that with no case law or previous experience of similar regulations they are possibly open to interpretation!

Who is eligible? 

Companies that reduce their energy use by a verifiable 35% either for their entire operation or for a sector of their operation can apply for a R0.45 kWh or equivalent for fuel etc for each unit of energy saved.  The efficiency must be consistent with genuine efficiency measures consistent over a 12 month period and not as the result of shorter shifts, less staff or reduced production.  While the R0.45 looks attractive, be advised that this comes off the gross income and amounts to a real incentive of about R0.12.

A strict but straight forward process to verify the eligibility of projects using accredited Monitoring and Verification specialists has been set in place.  SANEDI is the administering authority for an application for a 12 – L Tax Deduction Allowance.  SARS will not accept an application for the 12-L without a certificate verifying the stated efficiency from SANEDI.  The eligibility application can be completed online on SANED’s website: https://saneditax.org.za/Symfony/web/app.php/home

Why is the Government Incentivising Energy Efficiency?

Awareness of its responsibilities in a number of sectors incl electricity generation shortfalls, carbon emissions and health and environmental impacts associated with large scale combustion of fossil fuels resulted in government departments looking at strategies for energy efficiency. The Dept. of Energy started drafting a National Energy Efficiency Strategy (NEES) in 2005 with energy efficiency targets identified in a National Energy Efficiency Action Plan (NEEAP) for key sectors by 2015. The Dept. of Treasury came on board with the 12-L EE tax incentive in acknowledgement of government’s general responsibility to the public to encourage a reduction of pollution from fossil fuel.

How to Apply?

It is clear that the process has been well planned by a range of specialists involved in monitoring and verification (M&V) and the finalisation of standards for monitoring such as SANS 50010 for many years. (South African specialists are now leading the international task group on M&V.)  Although the M&V process and standards were designed with 12 – L EE tax in mind, they are likely to provide the basis for an accredited process to measure energy efficiency (EE) and carbon emissions for companies that publish their triple bottom line and their environmental sustainability performance.

Step 1  Initiate Project: Identify sector to be assessed for future energy efficiency measures and record baseline energy consumption information.  Remember the 12 –L tax deduction is based on actions that result in a 35% energy efficiency.   

Step 2:  Upload and register your formal EE project proposal online on the SANEDI website at: https://saneditax.org.za/Symfony/web/app.php/home.   This will give you initial feedback.  Note that you can self- register on the site before appointing a M&V professional if you are not sure if your EE project meets the broad requirements.

Step 3:  Decide based on feedback if your EE project meets the criteria of 12-L. Note that you are not eligible for 12-L if you receive any other government subsidy for EE.

Step 4:  Appoint an accredited M&V professional who will be required to do both the baseline pre-EE verification and the post EE M&V.  At the moment only three bodies nationally are M&V accredited so this could result in a temporary bottle neck. The fees for an M&V are not regulated but are in the order of 5%. These fees can be claimed as a tax deductible expense!  The SANAS (South African National Accreditation System) website lists accredited M&Vs and runs the verification process for new M&Vs. Go to: http://home.sanas.co.za/?p=749

Step 5: Submit your EE project for approval on the SANEDI website.  Remember that you have to have 12 months of proven EE.  These 12 month do not have to coincide with the SARS tax year. You can submit your EE project over two consecutive tax years.  SANEDI representatives stated that once a project has been submitted and has the approval of the M&V then the YES / NO process should not take more than 4 weeks!  If yes, you will be issued with a certificate for SARS.

Step 6: Apply to SARS for your 12-L EE Tax deductible rebate.

For answers to frequently asked questions go to: http://www.sanedi.org.za/wp-content/uploads/2013/12/12L-EE-Tax-Incentive-FAQs-11-03-14.pdf

KimK 18 March 2014


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