Incentives, energy and penalties – what’s actually going on?

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If the government can be as generous as it is to it’s own people (like President Jacob Zuma, Dina Pule or Tina Joemat-Pettersson) then surely it can be at least a little more generous to the many business that generate the gross domestic product that fills South Africa’s tax coffers.  At least that’s what I would have thought.

Perhaps I’m being unnecessarily churlish about the latest government ‘incentive’ to big business, but let’s have a look at it and let you decide.

The director-general of the South African National Energy Development Institute (Sanedi) Nelisiwe Magubane said that regulations had been promulgated that provide an allowance – in terms of the Income Tax Act – to businesses that save energy.  The allowance is 45-cents per kilowatt hour saved.

She says that the Minister of Finance, Pravin Gordhan, in consultation with the Ministers of Energy and Trade and Industry, had agreed that this figure (45c/kWh) would allowed as a deduction from taxable income.

So 1 000kWh saved provides a deduction of R450 and (the arithmetic’s simple, so I might get it right), so 10 000 kWh is R4 500 and 100 000kWh is R45 000.  The question is, is that enough?  Is that really an incentive for businesses to save electricity after they have been warned (and some have even paid) stiff penalties for not saving electricity in the manufacturing processes?  The penalties start with higher rates but, if ignored can result in additional fines.

So I suppose offering an incentive of 45c/kWh is at least something – and something is normally better than a kick in the pants.

However, in order to take advantage of the incentive scheme, the companies have to register with Sanedi and then acquaint themselves with the bureaucratic procedures that have to be followed before the tax incentive is allocated. Exactly what this means is unclear but Magubane said her department plans to hold workshops early in the New Year to explain how the process works.

At the same time, the Private Sector Energy Efficiency Project (PSEE) – a collaborative effort between the Department of Energy and the National Business Initiative – is also working to increase energy efficiency.

This project, being funded by Britain’s foreign international development department – and not by the South African government – seeks to assist 60 large companies, 1 000 medium-sized ones and 2 500 small ones to increase their energy efficiency.

This seems a bit odd to me too:  The principle of getting donor funding so you can teach someone to save is a bit like asking a bank to pay for your groceries when they teach you how to shop for bargains.  It just doesn’t make sense.

The UK funding doesn’t cover all the costs, as large companies have to contribute 40% to implementing energy reduction strategies recommended by the group.  There is no guideline on whether the medium- or small-sized companies are expected to pay anything at all.  They might be getting ‘free’ advice.

What I’m unsure about is whether either of these schemes will amount to much anyway.

You see the tax incentive and the incentive to save must be viewed against the looming threat of the Carbon Tax that will be introduced when south Africa’s Carbon Tax Policy is implemented in 2015. Carbon tax will penalise those companies that keep polluting the air.

So the government might well be giving with one hand (the incentive) and taking it all back with the other (the penalties).  That sounds to me like how tax always works.

What government is saying is:  “Here’s an incentive for you to use less energy.  If you do so then we’ll pay you within 30-days of finalising your annual tax statement.”  This announcement is greeted with a loud round of applause.

When the applause does down, government then says:  “Oh, by the way, you owe us hundreds of thousands of rands for polluting the air with your foul manufacturing processes.  Here’s your bill and you must pay it now.”  The hushed silence lasts a long time.

I’m starting to wonder if the incentive is real or whether its purely a way of getting civil servants to do some mental exercise – something that they appear to be notoriously bad at.  In fact, come to think of it, they’re not good at any exercise, physical or mental.

So I’ll watch this space with interest.  As I’ll watch the other rather strange announcement from the Department of Energy that it was going to put all plans for new nuclear power stations on the back burner in favour of more “environmentally friendly, coal- and gas-fired power stations”.

Nuclear energy, coal or gas are not renewable energy unless I’m missing something. Perhaps, this announcement too, has something to do with mental exercise for civil servants (which is the odd-one-out) but then, I don’t compose government statements: I just shake my head when they arrive.

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