South Africa · Renewable Energy Tax Incentive
Section 12B / 12BA
Tax Allowances
Tax Allowances
Renewable Energy Tax Incentives for Businesses & Individuals
125%
Tax Deduction
12B
Solar & Wind
12BA
Accelerated Allowance
SARS
Administered By
Income Tax Act | SARS 2026
According to South Africa’s Income Tax Act, businesses that invest in renewable energy receive significant tax deductions. The cost of solar panels, wind turbines, and other renewable energy equipment can be deducted from taxable income much faster than under the normal tax rules. As a result, businesses see a significant reduction in their tax bill from the beginning.
Permanent
Section 12B
There were two sections. Section 12B is permanent and is still in effect.
Expired
Section 12BA
Section 12BA offered an extra bonus benefit, allowing businesses to claim a tax deduction of 125 for every 100 spent on qualifying assets. However, this benefit ended on 28 February 2025. So, if you invest in 2026, you will have to follow only Section 12B.
How the Deduction Works
If you install a small Solar PV system of up to 1 MW, you can deduct the full cost in the first year. For larger projects, the cost is deducted over three years: 50% in the first year, 30% in the second year, and 20% in the third year.
Quick Overview
Section
12B
Permanent, Still Active
Section
12BA
Expired, ended on 28 Feb 2025
Deduction
50 / 30 / 20
or 100%
Enhanced Benefit
125%
Section 12BA
Solar PV
100%
Full deduction
Capacity
Up to 1 MW
Year-one deduction
Introduced
2004 / 2005
Section 12B start date
Current Rule
12B
Full deduction in 1 year
Section 12B vs Section 12BA
Section 12B
Full deduction in 1 year
According to South Africa’s Income Tax Act, those who invest in renewable energy receive an important tax benefit. This benefit is called Section 12B.
How it works
If you buy renewable energy equipment, the cost can be deducted from your taxable income in stages over three years. You get a 50% deduction in the first year, 30% in the second year, and 20% in the third year. As a result, the tax burden is significantly reduced early in the investment.
Special benefit for small-scale solar projects
If the solar system’s capacity is 1 megawatt (MW) or less, the entire cost can be deducted from taxable income in the very first year.
Who qualifies for this benefit
This tax benefit applies to all types of businesses – including registered companies, sole proprietorships, partnerships, and trusts. However, the equipment must be purchased outright or acquired through an instalment sale. Leased or rented equipment does not qualify.
Capacity threshold
According to the 2025 Budget, the 1 MW limit remains unchanged. If the system’s capacity exceeds 1 MW, it will still be eligible for the tax benefit — but in that case, the cost must be deducted over three years at the 50%–30%–20% rate.
Current status
Section 12B is a permanent provision with no specific expiry date. So, anyone who installs renewable energy equipment in 2026 or beyond will still be eligible for this same tax benefit.
Section 12BA
Deduction rate: 125%
This was an additional tax incentive that allowed businesses to claim 125% of their costs all at once. While many other incentives have a cap depending on the amount of energy the equipment can produce, this incentive did not have any such restriction.
Period
This incentive could only be claimed for equipment which became operational from 1 March 2023 to 1 March 2025.
No extension given
In the 2025 Budget, the government confirmed that Section 12BA would not continue. Any equipment installed after 28 February 2025 can no longer get this extra benefit.
Effect of selling the asset early
If the company uses the 125% tax write-off for its machinery and sells that machinery before 1 March 2026, the entire 125% tax write-off should be repaid to the IRS. But if the equipment is sold on or after 1 March 2026, normal rules apply instead — the amount paid back will be whichever is smaller: the money received from the sale, or the 125% originally claimed.
Approved Renewable Energy Systems for tax Relief
Wind Energy
Eligible Assets
Wind Turbines and Support towers
Concentrated Solar Power
Eligible Assets
CSP thermal power systems
Solar PV
Eligible Assets
Solar panels, Inverters, mounting and racking systems
Hydropower
Eligible Assets
Run-off-river systems and small scale hydro projects
Biomass
Eligible Assets
Organic waste, landfill gas, and plant based materials
Different Tax Deduction Rates Under 12B
With section 12BA now closed, section 12B is the only tax allowance left for businesses investing in Renewable Energy in South Africa. The current deduction rates are:-
Small solar PV – 1MW or Less
Deduction pattern
100% Tax deduction
Time
In 1 year
Large solar PV – Over 1MW
Deduction pattern
50/30/20%
Time
spread across 3 years
Wind Power – Any size
Deduction pattern
50/30/20%
Time
spread across 3 years
CSP, Biomass, Hydro
Deduction pattern
50/30/20%
Time
spread across 3 years
Foundation, Towers, Structures
Deduction pattern
50/30/20%
Time
spread across 3 years
The 1 MW Limit Remains
- Businesses wanted the 1 MW limit for 100% first-year solar deduction to be increased in the 2025 Budget.
- The government confirmed the 1 MW limit will stay the same.
- Solar systems of 1 MW or less: claim 100% deduction in year 1.
- Solar systems above 1 MW: claim 50% in year 1, 30% in year 2, 20% in year 3.
Section 12BA Has Ended
- The 125% tax incentive under Section 12BA was not continued in the 2025 Budget.
- Any renewable assets put into use after 28 February 2025 cannot claim this 125% benefit.
- If you claimed 12BA before and sell the asset:
- Sell before 1 March 2026: pay back the full 125%.
- Sell on or after 1 March 2026: pay back the lower of sale price or 125%.
Batteries and Inverters
- Batteries count for Section 12B if they are part of a renewable energy system.
- Batteries that only store grid power and are not linked to renewables do not qualify.
- Inverters, cables, towers, and other parts connected to the system also qualify.
Other Tax Deductions for Energy Assets
12D
Electricity Transmission Lines
- For electricity transmission lines, large cables, and pipelines
- A 5% tax deduction is allowed every year
- The full cost is recovered over 20 years
- Applies to assets that do not qualify
12U
Roads, Fences & Foundations
- For roads, fences, and foundations of solar parks or wind farms.
- The construction cost qualifies for a tax deduction.
- Applies only if the assets are used for renewable energy projects.
11(e)
General Wear and Tear
- Applies when business machinery loses value over time due to wear and tear.
- Covers assets that do not fall under any specific energy tax section.
- The deduction is claimed gradually each year according to SARS rules.
12E
Small Business Corporations
- Applies to qualifying small businesses.
- A 100% tax deduction may be claimed in the year new machinery is purchased.
- Cannot be claimed together with Section 12BA, but can be used alongside Section 12B for different assets.
Complex SARS Binding Rule
However, the provisions of such tax laws are complicated in nature since sections 12B, 12BA, 12D, 12E, and 12U have different provisions applicable to government grants. In case you receive any grants for the production of renewable energy, you can only claim tax deductions on the cost incurred by yourself, but not the grants received.
There are special provisions regarding partnerships as well (under section 24H). It is advised to consult a professional tax practitioner.
Related Post
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- NYDA Grant Programme
- Funza Lushaka Bursary
- Global Agriculture and Food Security Program
- REIPPPP Renewable Energy IPP
- EEDSM Programme
- Blended Finance Scheme
- Agro Energy Fund (AEF)
- South African Medical Research Council (SAMRC)
- Comprehensive Agricultural Support Programme (CASP)
- Ilima/Letsema Programme
- National Research Foundation (NRF)
- National Student Financial Aid Scheme (NSFAS)
Frequently Asked Questions (FAQs)
What is Section 12B?
The Income Tax Act Section 12B of South Africa is an incentive which gives companies a chance to benefit from tax deductions on renewable energy equipment including solar photovoltaics, wind, hydro, biomass and concentrated solar power technology.
Who is entitled to a deduction under Section 12B?
Companies and individuals carrying on a business in South Africa who have renewable energy equipment (either owned or financed through an installment credit agreement) that qualifies for the deduction may use the equipment in the production of electricity as part of their business activity.
Which Renewable Energy systems qualify for Section 12B?
Solar photovoltaic (PV), Wind turbines, Hydropower, Biomass, Concentrated solar power (CSP).
What is the amount of tax deduction I can claim under Section 12B?
In respect of qualifying assets placed in service after the end of Section 12BA: Solar PV ≤ 1MW – 100% in year one. Larger Solar systems and other qualifying assets: 50% in Year 1, 30% in Year 2, and 20% in Year 3.
Will there be a deduction under Section 12B in 2026?
Yes. Section 12B is a permanent provision that applies. The temporary 125% deduction in respect of Section 12BA expired on 28 February 2025. Investments made in 2026 would generally follow the Section 12B rules.
Official Link and Resources
1
SARS Guide IT39 (PDF)
Allowances for renewable energy assets
2
National Treasury FAQ (PDF)
Enhanced renewable energy incentive for businesses
3
SARS Official Website
Tax returns, rulings, and guides
4
National Treasury
Budget Speech, tax bills, policy
5
CDH: Solar Analysis
Legal commentary on BCR 88 and Section 12B
6
Mazars: 2025 Update
Post-Budget analysis of what remains