12L - what it will mean to your company
By G Radloff, Energy Cybernetics
Electricity+Control March 2014 (pages 58 – 60)
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Successful energy efficiency projects reduce energy costs. The return on investment for projects of this nature can be determined with a high degree of accuracy. Incentives like section 12L of the Income Tax Act, as amended, make investments in energy efficiency projects more attractive by improving their financial performance and thereby stimulating the implementation of more energy efficiency projects. The implementation of more energy efficiency projects helps to ensure security of supply, has a major impact on containing cost escalation, reduces environmental emissions and improves business competitiveness in general.
The section 12L tax incentive is a support mechanism implemented by government to encourage the adoption of energy efficiency projects. At the time section 12L was designed, the Eskom IDM rebate programme was in full swing. Section 12L was never designed to replace or supplement the Eskom IDM process – in fact concurrent benefits (like claiming both section 12L and an Eskom rebate) are prohibited. Section 12L was designed to cater for projects that fell outside the IDM realm.
With the uncertainty regarding the future of the Eskom IDM process there is a chance (although this is pure speculation) that Treasury may re-visit the section 12L rates at some future date with a view to increasing the rebate, increasing the period over which the rebate may be claimed or possibly both.
We believe government is committed to making section 12L a success and that they would be willing to adapt the system as needed in future to ensure this success. This is because section 12L poses a win-win for all parties involved, government gets more taxes due to increased profitability, the customer gets the additional financial benefit, emissions are reduced which benefits the environment and the economy is stimulated owing to more projects and the increased competitiveness of industry in general.
- Section 12L is a tax incentive to encourage energy efficient projects.
- Section 12L was not designed to replace or supplement the Eskom IDM process.
- Secttion 12L poses a win-win for all parties involved.