by Roger Lilley, Energize

Although many people celebrated the announcement when it was made by Finance Minister Enoch Godongwana during his Budget Speech in February 2023, the South African Local Government Association (SALGA) has expressed serious concerns about the implications of the plan.

According to Godongwana's announcement, individual taxpayers will be able to claim 25% of the purchase price of the solar panels they buy from their tax. The rebate is capped at R15 000 per taxpayer and applies to the current tax year only (1 March 2023 to 28 February 2024). Businesses get an even bigger rebate: They can claim 125% of the purchase cost of the panels they buy over the next two years.

The rebate covers the price of the panel only. The costs of delivery, installation, peripheral equipment, certification of compliance, or any other associated costs will not be part of the tax rebate offered by the Minister.

However, while individuals and businesses may benefit from this offer, and rejoice in the idea of an additional tax rebate, the municipalities which supply most residences and businesses with electricity stand to lose a significant portion of their revenue as a result of this rebate.

According to SALGA, municipalities are already losing a lot of revenue due to the load shedding imposed on the country by Eskom's inability to meet demand. When load shedding begins, electricity is interrupted and the meters stop. Since this occurs twice or three times per day, every day, these meters are inactive for virtually 50% of each day. When the meter is read at the end of the month, far fewer units have been consumed and the electricity bill is lower than it would have been without load shedding.

Those who have prepaid meters are finding that the units they buy are lasting for longer periods of time, so they buy fewer units, or the same number of units less often.

Edward Kieswetter, the deputy commissioner, and chief officer of the South African Revenue Service (SARS), has been quoted as saying that the principal purpose of offering this tax rebate is to get as many people off the grid as possible.

But taking people off the grid may not be a good idea at all.

Municipalities need revenue to operate. What they receive from rates and other income is not enough to cover their use of electricity. Municipalities are responsible for street lighting, traffic lights, lighting and heating/cooling of municipal offices, pumps for water supply, pool pumps at public swimming pools, and maintenance of, and improvements to, electrical infrastructure.

This has always been covered by the profit the municipality makes by selling electricity to consumers at tariffs that are higher than Eskom charges municipalities for bulk supply of electricity.

SALGA told parliament recently that this tax rebate will encourage residents and businesses to generate some of their own electricity and would deprive municipalities, which had traditionally sold electricity to these consumers, of a significant amount of revenue. Revenue, SALGA says, that municipalities need to meet their fiduciary commitments.

Municipalities are already struggling to meet the cost to repair or replace electrical infrastructure which fails due to the ongoing switching off and on again when load shedding begins and ends, as well as the repairs necessary due to vandalism and theft which occurs during prolonged periods of load shedding.

Salga says the tax incentive for rooftop solar panels will only benefit the middle class since it is these high-energy consumers who can afford to install solar PV panels. Furthermore, it is these same consumers who make a considerable contribution to a municipality's electricity revenue and subsidise the poor and those unable to pay for electricity.

As these consumers move off the grid or at least reduce their dependence on the municipality for electricity, the municipality's overall revenue income would decrease and increase the municipality’s need to cross-subsidise the poor, who would face above-inflation tariff increases.

SALGA says that Treasury would have to allocate more money to local government to compensate for the losses municipalities will face as consumers defect from the grid.