oil and gas taxation

Last week, the South African Revenue Service (SARS) issued the Interpretation Notes to the Regulations on the tax deduction available for energy efficiency savings under section 12L of the country’s Income Tax Act.

General manager of SANEDI (South African National Energy Development Institute), Barry Bredenkamp, noted in a statement that “section 12L allows taxpayers to claim a deduction for most forms of energy-efficiency savings that result from activities performed in the carrying on of any trade or in the production of income.”

Energy efficiency deductions

According to SARS, in response to South Africa ranking as one of the top 20 contributors of greenhouse gas emissions in the world, the government voluntarily announced during the 2009 United Nations Climate Change Conference in Copenhagen and confirmed in Paris in 2015, its commitment to reducing domestic greenhouse gas emissions.

As a result, SARS highlighted that Government has since proposed a carbon tax policy to encourage behavioural change towards cleaner low-carbon technologies.

“As a complementary measure, government has introduced environmental-related tax incentives to address concerns related to global warming and energy security such as section 12K (exemption of certified emission reductions).”

Carbon tax policy

Section 12L became effective on November 1, 2013, and applies up to years of assessment ending before January 1, 2020. The deduction reduces a taxpayer’s taxable income, Bredenkamp noted.

According to the SARS document, from 1 November 2013 to 28 February 2015, the rate at which the deduction was calculated was 45 cents per kilowatt hour or kilowatt hour equivalent of energy-efficiency savings.

For years of assessment commencing on or after 1 March 2015, the deduction is calculated at 95 cents per kilowatt hour or kilowatt hour equivalent of energy-efficiency savings.

Section 12L became effective on 1 November 2013 and applies to years of assessment ending before 1 January 2020.

According to Bredenkamp, SARS points out that attention should be paid to the method of calculating the baseline at the beginning of the year of assessment and the energy savings in multi-year projects.

Certificates also need to be obtained from the South African National Energy Development Institute (SANEDI) for each project and year of assessment.