Load shedding: A lifetime of crisis

Johannesburg, 16 February 2024 – Seventeen years is a long time to be in a state of crisis. With load shedding starting in 2007 and no end in sight, the question is where to from here? Lisa Kahanovitz, Project Director: Tax Advocacy at the South African Institute of Chartered Accountants, takes a closer look.

On 8 February 2024, President Cyril Ramaphosa delivered the 30th State of the Nation Address (SONA) and assured South Africans that the government had a clear plan to end load shedding. However, load shedding has trended upwards over the years (exponentially in 2023), and to make matters worse, the night the SONA was given load shedding was increased to stage 4 and a few days later to stage 6, indefinitely.

According to the South African Reserve Bank (SARB), the rolling blackouts of between 6 to 12 hours a day, lose our economy between R204 million and R899 million daily. Interestingly, SARB’s GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.2% and 1.3%, respectively. The International Monetary Fund (IMF) has recently lowered its 2024 forecast from 1.8% to 1%. IMF Chief Economist Pierre-Olivier Gourinchas stated that this is due to “all of the disruptions we’ve seen in the energy sector and also the logistics — in transportation, freight and ports in South Africa.”

In 2023 the government endeavoured to relieve some of the strain on the grid by granting relief for the cost of solar via a one-year rebate for individuals. In addition to this, they enhanced the attractiveness of a company’s tax renewable energy incentive for a period of two years.

Individuals will however only be granted relief for the cost of solar photovoltaic (PV) panels and would need to be liable for personal income tax to claim the relief. The solar PV panels would need to have a minimum generation capacity of not less than 275W each and would need to be mainly used for household domestic purposes. The amount of the solar energy tax credit allowed as a reduction of the individual’s overall tax liability is 25% of the cost of the solar PV panels, up to a maximum of R15 000. It is important to note that an electrical certificate of compliance is required to claim the rebate. The panels will need to be new and unused and brought into use for the first time by the individual on or after 1 March 2023 and before 1 March 2024 (the legislation does not stipulate when the panels should have been acquired). Accordingly, the date to make use of this relief is all but over and SARS only released draft guidance on this rebate on 26 January 2024.

In the hearings with the Standing Committee on Finance, National Treasury, and the public on 25 October 2023, several of the issues raised by the public relating to this relief were discussed. With specific regard to the relief for individuals, National Treasury noted a concern from the public that the relief may only benefit the upper-income group. They mentioned that the design of the relief ‘takes the form of a rebate to ensure that the benefit is equalised for all taxpayers who can claim the incentive … and that there are other affordable options ‘like the Energy Bounce Back loan guarantee scheme and on-budget support for specific projects.’

Another comment from the public was that the period of one year was too short, however National Treasury confirmed that there had been a large increase in solar panel imports in 2023 which, according to them, meant that the short period had mobilised individuals to take up this offering. They also noted that ‘an extension would add to a pressurised fiscal position’ which was the same response regarding the request from the public to remove or increase the cap of 25%. Other comments that were also not accepted related to including the cost of inverters and batteries in the relief and extending the relief to rent-to-buy solar arrangements.

If the options given are no relief or relief with the concerns above, we would no doubt choose the latter. Although the concerns certainly limit the proliferation of solar in South Africa, National Treasury, and therefore our nation, cannot cope with further fiscal pressure. We can only hope that we will see this relief offered again in the future.

The core problem with load shedding is that it has a detrimental effect on job creation. Many businesses have failed solely due to load shedding and not being able to afford alternative energy sources. According to Statistics SA’s 2023:Q3 Quarterly Labour Force Survey the ‘unemployment rate decreased by 0,9 of a percentage point to 41,2% in Q3:2023 compared to Q2:2023’ in terms of the expanded definition. According to the Bureau of Labor Statistics the United States of America’s unemployment rate is 3,7%, which you might say is unfair to compare to South Africa, however they have a working population of about 170 million people compared to South Africa’s workforce of about 23 million people. Our unemployment rate, in comparison, is alarmingly high.

What this means is that fewer taxes are collected, which adds to the other pressures felt by the fiscus, such as overspend. The question is, therefore, how will National Treasury manage this?

2024 is an election year, therefore it would be natural to assume that tax rates won’t increase, especially as the latest polls show greatly reduced support for the ANC. Certainly, VAT wouldn’t increase as the rate was increased somewhat recently and it affects everyone from poor to rich. The corporate income tax rate wouldn’t increase as that has recently been reduced and one wouldn’t think the PAYE rate would increase as it is already high, and voters may vote with their feet more so than they already have and immigrate en mass. An increase could possibly be seen in the fuel levy as that hasn’t increased for a while. In recent years even the most well-known tax minds were unable to accurately predict pre-budget speech whether tax rates would increase, and if so, which tax type rates would increase. So, it is a best guess as to what will ultimately transpire.

Consequently, what is the solution in National Treasury and the South African Revenue Services’ hands? Improving efficient collection of taxes is one, improvement to systems, and assisting compliant taxpayers, further measures to prevent fraud connected to tax and certainly further control over cross-border transactions. The only thing South Africans can do now is wait and see what the 2024 Budget holds.

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