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South Africa has been grappling with an energy crisis, resulting in frequent power outages and disruptions – we know this all too well as load shedding. The detrimental impact of this energy shortage is felt across industries, leading to decreased productivity, rising costs, and economic instability. In response to this pressing issue, the South African government has introduced Section 12BA of the Income Tax Act, providing tax incentives to investors who contribute to alternative energy sources. Investors can benefit from this incentive and if done correctly, can earn significant returns and tax savings of up to 90% while assisting in alleviating pressure off the grid.
Understanding the impact of Load Shedding:
Load shedding has become an unfortunate norm in South Africa, with the government struggling to meet the rising demand for electricity. The South African Reserve Bank estimates that Stage 6 load-shedding costs the South African economy over R900 million a day, and that the economy today would be 17% larger if load-shedding did not exist. The inefficient operation of coal plants, infrastructure breakdowns, and limited investment in alternative energy sources have exacerbated the situation.
The Role of Section 12B:
Recognizing the need for private sector involvement in energy production, the South African government introduced Section 12B in 2016 as a means to incentivize investments in renewable energy. Initially focused on solar projects, this provision offered a 100% tax deduction over three years for projects over>1MW, and an immediate 100% deduction on solar projects
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