South Africa has the good fortune of possessing many renewable energy sources that remain largely untapped, wind and solar energy being among them. In the longer term, these two leading renewable technologies have the greatest potential with little or no negative impact on the environment. However, despite abundant renewable energy sources, developing sustainable markets for renewable energy technologies presents complex challenges as financial obstacles often hinder its advancement.

The key question facing developers of renewable energy projects, is whether their cost of capital will be low enough to allow them to generate electricity for less than R1.25 a kilowatt hour or R2.10 a kilowatt hour (for wind and solar energy respectively), as per the current feed-in tariffs which were approved by South Africa’s National Electricity Regulator in March this year.

What can be done to ease the pressure on developers? Tax incentives can play a valuable role whereby taxpayers wanting to generate electricity of not more than 30 megawatts, from wind, sunlight, biomass and gravitational water forces, qualify for an accelerated depreciation allowance. This allowance cannot be claimed on any equipment that is used for transmitting or distributing electricity and is only to be utilised on equipment which actually generates electricity. Biofuel production is subsidised through a similar accelerated depreciation allowance.

National Treasury introduced the allowance to encourage entry into the market by targeting technologies where the initial cost is the biggest obstacle to developers. In a media release earlier this month by law firm Edward Nathan Sonnenbergs, Mansoor Parker pointed out that “In renewable energy projects, especially wind, the biggest cost is the turbines as sometimes developers are required to make down-payments well ahead of the start of the project. However, the payment obligations for these developers is eased somewhat as the Income Tax Act allows them to purchase ‘machinery, plant, implements, utensils or articles’ or more simply “equipment” for commercial use”.

These policy initiatives certainly complement other implemented strategies to create an encouraging environment for South Africa’s renewable energy targets. Hopefully this and future initiatives by Government will cease the growing “Escom Tax” burden!

Yours truly,
Stiaan Klue

A tenet of a fair legal system is certainty, and one of the ways in which this can be achieved is to avoid, wherever possible, the promulgation of legislation that is applied retroactively. After all, certainty can only really be obtained if one knows that the rules that are in force at a particular time can be relied on to govern an action to be taken at that time. This means that for legislation to be fair, it should only be applicable as from the time it is promulgated.

The emergence of the virtual marketplace has changed the way in which the traditional business model operates. What does this mean for the country’s tax base? Are South Africa’s tax laws still applicable to transactions taking place in the cyber world?

The taxpayer, 3M South Africa (Pty) Ltd (3M), had been importing, from June 1990 a particular type of mat that contained ceramic fibre mineral wool used in the manufacture of catalytic converters to control exhaust emissions on vehicles. Although 3M was not involved in the manufacture of such converters, the material was to be used for a particular batch of converters that was intended to be exported. Accordingly, the commissioner classified the importation thereof on June 11 1990 under tariff code 6806.90.90, which resulted in the imported material being exempt from import duty.

SARS released the draft guide to reportable arrangements for public comment. The guide sets out the general guidelines to the Reportable Arrangement provisions in sections 80M to 80T of the Income Tax Act, Act 58 of 1962 (the Act), as applied by the South African Revenue Service (SARS).

SARS released a draft Interpretation note for public comment on 29 March 2010. The note provides guidance on the tax consequences resulting from the receipt or accrual of government grants and government scrapping payments.

SARS released a draft interpretation note to to clarify the VAT consequences of grant allowances in the form of discounts, rebates and incentives to customers.

During the past week Saint Kitts and Nevis, Saint Vincent and the Grenadines and Anguilla, an overseas territory of the United Kingdom, have signed a total of 14 tax information exchange agreements, bringing the total number of agreements signed by each jurisdiction to at least 12 that meet the internationally agreed tax standard.

The international fight against cross-border tax evasion has entered a new phase with the launch by countries participating in the Global Forum on Transparency and Exchange of Information of a peer review process covering a first group of 18 jurisdictions.