Income Tax Act amendments proposed for energy saving
The Treasury wants to repeal the tax exemption for certified emissions reductions and extend the energy-efficiency savings tax incentive for a further three years
The National Treasury has released draft amendments to the Income Tax Act, which propose repealing the tax exemption for certified emissions reductions and the extension of the energy-efficiency savings tax incentive for a further three years.
The proposals were released on Tuesday for public comment.
The proposed amendments to section 12K of the act are in line with the announcement made in the budget review in February. The proposed repeal will take effect from June 1 2019.
The reason for the repeal is to avoid a situation where taxpayers enjoy a double benefit for the same emissions reductions, namely an income tax exemption under section 12K of the Income Tax Act, as well as a lower carbon tax liability for a taxpayer under the Carbon Tax Act.
It is proposed that the repeal of the tax exemption for certified emissions reductions take effect from the same date as the carbon tax — June 1 2019.
The Carbon Tax Act allows taxpayers to reduce their carbon tax liability by investing in low-carbon projects developed under international programmes or standards, such as the Clean Development Mechanism (CDM) of the Kyoto Protocol, gold standard, and verified carbon standard.
As from June 1 2019, taxpayers qualify for a carbon offset allowance of up to a maximum of 10% of its total greenhouse gas emissions under the Carbon Tax Act.
According to the memorandum, the government introduced a tax exemption in 2009 for income generated from the sale of certified emissions-reduction credits arising from projects developed under the CDM.
“The main aim of the incentive is to promote investments in eligible, low-carbon initiatives, including renewable energy and energy-efficiency projects in SA, by partially offsetting the high project registration, monitoring and credit verification costs incurred by project developers,” the memorandum stated.
The draft bill will also extend the energy-efficiency savings tax incentive for an extra three years to 2023 to align it with the first phase of the carbon tax.
This follows consultations with stakeholders on the carbon tax during which some argued that the energy-efficiency savings tax incentive should be extended beyond 2020 to ensure there is long-term policy certainty on revenue recycling commitments made under the carbon tax. The energy-efficiency savings tax incentive has a sunset provision in which only energy-efficiency savings generated prior to the year of assessment ending before January 1 2020 are eligible to qualify for the incentive.
“It is proposed that the energy-efficiency savings incentive be extended to allow for energy-efficiency savings deductions from the income of any person carrying on any trade in respect of [the] year of assessment ending before January 1 2023. The proposed amendment will come into effect on January 1 2020,” the memorandum said.
The aim of the extension, it said, “is to cushion households and energy-intensive industries from potential adverse impacts after the introduction of the Carbon Tax Act, and to help industries transition to lower-carbon, energy-efficient practices”.
The government introduced the energy-efficiency savings tax incentive in 2013 to encourage investments in energy-efficiency measures to help reduce emissions of greenhouse gases, address climate change, and promote efficient energy use.
The Treasury said that, to date, the incentive has helped promote significant investments in energy-intensive sectors, such as mining and manufacturing, amounting to about R3bn in total.