Section 12B Solar Tax Incentives Explained for Businesses
South Africa’s loadshedding crisis may have eased, but the financial case for going solar has never been stronger.
Beyond the obvious savings on electricity bills, businesses that invest in solar can unlock significant tax deductions, and many owners are still unaware of just how valuable these provisions are.
This guide breaks down Section 12B of the Income Tax Act: what it is, who qualifies, how much you can claim, and what’s changed recently.
Whether you’re a small business considering a rooftop installation or a larger operation planning a full commercial solar array, understanding your tax position could meaningfully reduce the cost of your investment.
What Is Section 12B? The Basics
Section 12B of the Income Tax Act 58 of 1962 provides an accelerated capital depreciation allowance for businesses that invest in assets used to generate electricity from renewable sources. In plain terms: instead of writing off the cost of your solar system slowly over many years, you can deduct a large portion, or even all of it, in the early years of ownership, reducing your taxable income significantly in the period that matters most.
Qualifying assets under Section 12B include equipment used in generating electricity from:
- Photovoltaic (PV) solar energy
- Concentrated solar energy
- Wind power
- Hydropower
- Biomass comprising organic wastes, landfill gas, or plant material
This means solar panels, racking, cabling, wiring, inverters (as part of an integrated system), and qualifying supporting structures can all form part of the allowance.
Section 12B vs Section 12BA: Understanding the Difference
To make sense of the current landscape, it’s helpful to understand how these two related provisions work, and why one of them no longer applies to new installations.
Section 12B — The Permanent Provision (Still Active)
Section 12B is permanent legislation with no expiry date. For most solar PV installations, the deduction is structured as follows:
- Solar PV installations of 1 megawatt or less: 100% deduction in year one, the full cost can be written off immediately
- Solar PV installations exceeding 1 megawatt: 50% deduction in year one, 30% in year two, and 20% in year three
The 1MW threshold for the 100% year-one deduction was confirmed by National Treasury in the 2025 Budget Speech and will not be revised, despite calls from industry to align it with the higher self-generation registration threshold.
Section 12BA — The Temporary Enhanced Incentive (Now Expired)
Between 1 March 2023 and 28 February 2025, businesses could access an enhanced incentive under Section 12BA, a sister provision introduced specifically to accelerate private investment during South Africa’s energy crisis.
It offered a once-off deduction of 125% of qualifying costs, with no cap on generation capacity.
To put that in context: a solar PV system costing R1 million would qualify for a Section 12BA deduction of R1.25 million. At the current corporate income tax rate of 27%, that could reduce a business’s income tax liability by R337,500 on a R1 million investment.
Section 12BA was not renewed in the March 2025 Budget Speech. Any renewable energy assets brought into use after 28 February 2025 are not eligible for this allowance.
If your installation was completed before that date, you may still be working through the implications, including recoupment rules if you dispose of those assets.
Quick Comparison
Section 12B | Section 12BA | |
Status | Permanent & active | Expired 28 Feb 2025 |
Deduction rate | 50/30/20 over 3 years (or 100% yr 1 for solar PV ≤1MW) | 125% upfront, once-off |
Who qualifies | Companies, sole traders, partnerships, trusts | Same — assets brought into use 1 Mar 2023 – 28 Feb 2025 only |
1MW cap | Yes — 100% yr 1 only for ≤1MW solar PV | No cap during incentive window |
Who Can Claim Section 12B?
Section 12B is available to any taxpayer carrying on a trade, which includes:
- Registered companies (claim on ITR14)
- Sole proprietors (claim on ITR12)
- Partnerships (each partner claims their proportionate share)
- Trusts engaged in trade (claim on ITR12T)
The key requirements are:
- The asset must be owned by or acquired under an instalment credit agreement by the taxpayer
- It must be brought into use for the first time by that taxpayer, it does not have to be brand new, but the taxpayer cannot have previously claimed on the same asset
- The asset must be used for the purposes of a trade
- It must be used in generating electricity from a qualifying renewable source
Importantly, Section 12B cannot be claimed alongside Section 12BA for the same asset. Businesses with assets installed before 1 March 2025 that opted into 12BA should also note that a recoupment applies if those assets are sold before 1 March 2026.
What Costs Qualify?
The scope of Section 12B is fairly specific. According to SARS guidance, qualifying costs typically include:
- Solar PV panels and their constituent parts
- Racking, mounting structures, cables and wiring forming part of the solar system
- Concrete foundations and supporting steel structures integrated with the installation
- Inverters, when integral to the electricity generation system
- Batteries, provided they form part of a system that actively generates electricity (not standalone storage units)
Costs that do not qualify include distribution boxes not forming part of the solar system, and any assets used solely for drawing and storing grid power without any generation component.
VAT-registered businesses can additionally claim input VAT on purchase and installation costs under Section 17 of the VAT Act.
How to Claim: A Practical Overview
Claiming Section 12B is done through your annual income tax return. Here’s what you’ll need:
- A certificate of completion for the solar installation, confirming the date the asset was brought into use
- An invoice detailing the full cost of the system, inclusive of VAT
- Proof of payment
- A fixed asset register entry recording the asset under property, plant, and equipment
The qualifying expenditure is then included in the relevant section of your company or individual tax return. SARS may request supporting documentation to verify the claim, so keeping thorough records from the outset is essential.
Given the complexity of these provisions, particularly around what qualifies, the interaction between 12B and other allowances, and recoupment rules, it is strongly advisable to work with a qualified tax practitioner.
The South African Institute of Tax Professionals (SAIT) maintains a directory of accredited practitioners if you need guidance.
Is Solar Still Worth It Without the 125% Boost?
Absolutely. While the expiry of Section 12BA removed a very generous temporary sweetener, the underlying business case for commercial solar in South Africa remains compelling:
- Section 12B still provides a 100% year-one deduction for solar PV installations under 1MW, significant tax relief in its own right
- Electricity tariffs continue to rise, meaning the operational savings from solar grow year on year
- Energy security and protection from loadshedding events remains a critical operational benefit
- Solar assets typically have a lifespan of 25+ years, delivering returns well beyond the tax incentive period
For many businesses, the tax deduction accelerates the payback period considerably.
A solar installation that might have paid for itself in seven to eight years through electricity savings alone could break even significantly sooner once the Section 12B deduction is factored in.
Our team at Solar Projects can model the financial return for your specific situation, taking into account your current electricity spend, system size, and tax position.
Ready to Explore Your Options?
Section 12B remains one of the most effective tax incentives available to South African businesses, and one that is frequently underutilised simply because business owners aren’t aware of it.
If you’re considering a commercial solar installation, now is the time to understand exactly what you can claim and how it affects your total cost of ownership.
Get in touch with Solar Projects for a no-obligation consultation. Our team will assess your site, design a system that’s right for your business, and help you understand the full financial picture, including your Section 12B entitlement.
Frequently Asked Questions about Solar Energy
- Cost reduction
- Energy independence
- Eco-friendly
- Incentive opportunities
- Property value
The answer, though, is simple: Large appliances. If you're running a central air conditioner (which uses about 2,000 kilowatt hours of electricity per year), heat pump, or clothes washer or dryer frequently, you could be consuming much more energy than you regularly do.
Yes, solar panels work on cloudy days, but they are significantly less efficient and produce about 10–25% of their normal power output. Sunlight still reaches the panels as a diffuse light source, and modern panels can still generate electricity, though much less than on a clear, sunny day. The exact amount of power generated depends on the cloud cover's thickness.
The size of the solar system you need depends on your energy consumption, the size of your roof, and the amount of sunlight your home receives. Get in touch today and let us help you determine the appropriate size for your needs.
While it is possible to install a solar system yourself, it is highly recommended to hire a professional solar installer (like us) to ensure that the system is installed safely and correctly.
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