Section 12B & VAT
The tax side, without the folklore
A lot of what is online about solar tax in South Africa is out of date, and some of it was never right. Here is the current position.
Every route open to you.
Who each one takes, who it rules out, and the one thing to know before you pick it. Anything not listed here is missing because this kind of business structurally cannot use it. Term, rate, ownership and tax for every product are defined once on the funding hub.
Asset finance
A term loan against the plant. You own it, and you owe for it.
- Who qualifies
- Any trading entity with the cash flow to service it and something to secure it against
- Who it excludes
- Entities with no balance sheet to lend against — bodies corporate and HOAs — and businesses with no taxable income, for whom the allowance is worth little
Worth knowing up front. Declined on security is not the same as declined on affordability. The first can be fixed with a guarantee; the second cannot.
Rental
You rent the plant. The funder owns it and maintains it.
- Who qualifies
- Businesses that cannot or do not want to carry the asset on the balance sheet, and anyone with no taxable income to point an allowance at
- Who it excludes
- Nothing structural — but it costs more in total than owning
Worth knowing up front. Maintenance sits with the funder for the term, which is worth real money on a remote site. Insurance does not — you arrange that yourself.
PPA
You buy the electricity, not the system.
- Who qualifies
- Anyone with no capital, no tax appetite or no balance sheet — and bodies corporate, for whom it is usually the only workable structure
- Who it excludes
- Nothing structural, but it is the most expensive route across twenty years
Worth knowing up front. The escalation rate is the number that decides this deal. This market commonly runs 5% to 10% a year, and at 7% the payment roughly doubles over ten years. Get it in writing before you present it to anyone.
Section 12B fund structure
A fund takes the asset and the allowance; you take the output at a lower cost.
- Who qualifies
- Commercial and industrial sites of a size a fund will take on
- Who it excludes
- Small sites, and anyone who wants to own the plant
Water finance / WPA
The same structures applied to water: buy the equipment, or buy the water it delivers.
- Who qualifies
- Any site where water supply or quality is a constraint — and it can be bundled with the generation that runs it
- Who it excludes
- It cannot be funded inside the Agro Energy Fund, which covers the energy asset only
Section 12B, which is permanent
A taxpayer using a solar plant to generate electricity for their own trade deducts the qualifying cost: 100% in year one up to 1MW, and 50% / 30% / 20% across three years above it. The 2025 Budget confirmed the 1MW threshold is not being revised.
Qualifying cost is direct acquisition, installation and erection, plus foundations and supporting structures. Batteries qualify where they form part of a generating system. Diesel and gas do not.
Section 12BA is gone
The 125% enhanced deduction expired on 28 February 2025 and was not renewed in either the 2025 or the 2026 Budget. A great deal of material still online promotes it as available. It is not.
The Section 6C solar rebate for individuals ended after the 2024 tax year.
VAT
VAT-registered businesses recover input VAT on capital equipment and installation separately from the Section 12B claim. Every figure we model is excluding VAT, and we say so wherever we show one.
Grants and the deductible base
Where a project carries a government grant, whether that grant reduces the cost you may deduct is not settled. The conventional treatment of an exempt grant says it does. We show it the conservative way and label it as unconfirmed rather than stating a position we cannot support.
On a R1m project at 27%, the difference between deducting R1m and R500,000 is R135,000 — which is why we would rather flag it than guess.
Who cannot use any of this
Section 12B offsets taxable income. If you have little or none — a body corporate, an HOA, a business running at a loss — the allowance is worth close to nothing, and a structure where somebody else owns the asset and passes the benefit through the tariff will usually beat owning it. That is the whole logic of a PPA.
Water equipment is not a 12B asset
Section 12B is an energy allowance — plant generating electricity from renewables. A borehole, a treatment works or a reverse osmosis plant does not fall inside it, and is dealt with under the ordinary capital allowance rules for plant and machinery instead.
This matters when a project bundles water and power on one facility, because it is tempting to model the whole cost as attracting a 100% year-one deduction. It does not. Split the two before you run the numbers, and put the treatment of the water portion to your tax practitioner.
What the allowance is worth on each structure
The allowance follows ownership, so the structure decides who gets it — and whether it is worth anything to you at all.
- Asset finance — you own the plant and deduct the full qualifying cost. At 27%, a R1,000,000 system is worth roughly R270,000 in year one
- Blended grant funding — you own it, so it applies, subject to the unresolved question below about the grant portion
- Rental and rent-to-own — no 12B during the term, because you do not own the asset. The rental is generally deductible as an operating expense instead
- PPA — no 12B. You are buying electricity, deductible the way your municipal account is
Good questions.
Does my borehole or water treatment plant qualify for Section 12B?
No. Section 12B covers plant generating electricity from renewable sources. Water equipment falls under the ordinary capital allowance rules for plant and machinery. If a project bundles water and power, split the two before modelling the deduction.
Can I still claim the 125% deduction?
No. Section 12BA expired on 28 February 2025 and was not renewed. Section 12B at 100% year one, up to 1MW, is what remains and it is permanent.
Does the battery qualify?
Where it forms part of the generating system, yes.
Do I claim VAT as well?
If you are VAT registered, input VAT on the equipment and installation is recovered separately from the 12B claim. Model project costs excluding VAT.
Two minutes, free, and non-binding. Every answer carries a route, including the ones that rule a programme out.
Before you rely on any of this
ArkFlow is not accredited by, empanelled with, or appointed as an agent of Land Bank, the IDC, DALRRD, the Department of Tourism, SEDFA or the NEF. Government and DFI programmes are applied for by you. We help you prepare and submit; you remain the applicant.
ArkFlow is not a financial services provider and does not give financial advice, and is not a registered tax practitioner. Nothing on this page is a quote, an offer of finance, an approval, or a recommendation to enter into any credit agreement.
Programme terms, grant availability and application windows change without notice. Figures shown are indicative and depend on the administering institution’s own assessment and on funds available at the time. Where a programme runs in windows we will not describe it as open unless a current window is confirmed.