2023 Budget Speech – Research and Development, Energy, Carbon and Investments

The Minister of Finance, Mr. Enoch Godongwana, presented National Treasury’s annual 2023/24 budget earlier this afternoon. We set out below the most notable observations from a research and development, energy, carbon tax and investment incentives point of view.



Section 11D Research and Development Tax Incentive – After extensive consultation with the government, Catalyst Solutions is pleased to see the Minister confirming proposed changes to the R&D Tax Incentive. The updates to the R&D Tax Incentive will be enacted into legislation over the coming months. The most significant updates are summarised below: 

  • The incentive has been extended by a further ten years to 31 December 2033;
  • A 6-month grace period will be implemented. The practical effect is that approval letters will be effective six months prior to the submission date of an application, opening the door to short-duration projects to benefit more than in the past;
  • The R&D definition has been simplified and brought in line with international standards. The end-result approach is scrapped, and more focus will be on activities that are novel, uncertain, systematic, transferable and/or reproducible; and
  • The internal business process exclusion has been done away with – any project (whether or not it relates to an internal project) meeting the definition of R&D can now benefit.
Support Programme for Industrial Innovation (“SPII”) – The SPII grant has been funded with a further R75m for the 2023/2024 financial year, with inflation increases in annual funding forecast for the next 3 years.


Technology Innovation Agency (“TIA”) – TIA and its suite of funding instruments have been allocated R460m in funding for the coming year, increasing to R502m in 2025/2026.


Section 12B Renewable Energy Tax Incentive – From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate (27%), this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation. There will be no thresholds on the size of the projects that qualify, and the incentives will be available for two years to stimulate investment in the short term.

Rooftop Solar incentive – Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000. This can be used to reduce their tax liability in the 2023/24 tax year. This incentive will only be available for one year.

Bounce Back Loan Guarantee Scheme – In 2023, the National Treasury will amend the bounce-back scheme to address energy-related constraints hampering businesses’ recovery from the COVID-19 pandemic. As part of the amendments: 

  • Government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
  • Commercial banks will be permitted to borrow directly from the scheme to facilitate the leasing of solar energy equipment to small businesses. 
  • Small businesses installing solar will be able to borrow finance for working capital. 
  • Wheeling – Proposal for the implementation of a wheeling framework and grid capacity rules to provide certainty to private producers investing in energy projects.
  • Energy Security Bill – Clearing regulatory obstacles by establishing a one-stop shop to bring electricity onto the grid more rapidly. This will be supported by the Energy Security Bill, which removes regulatory impediments for independent power producers. Further to this, the licensing requirement for embedded generation projects has been lifted.
  • The Risk Mitigation Power Purchase Procurement Programme – A request for proposals for the seventh bid window will be issued in the first half of 2023/24, subject to grid availability.

Carbon Tax Rates

  • Effective 1 January 2023, the carbon tax rate increased from R144 to R159 per tonne of carbon dioxide equivalent. 
  • In line with the carbon tax rate increase, the carbon fuel levy for 2023/24 will increase by 1c to 10c/l for petrol and 11c/l for diesel from 5 April 2023.
  • The carbon tax cost recovery quantum for the liquid fuels refinery sector increased from 0.63c/l to 0.66c/l, effective from 1 January 2023.
Carbon Offsets
  • The utilization period of carbon offsets in respect of approved projects in existence prior to 1 June 2019 for activities that became subject to carbon tax will be extended in the Carbon Offset Regulations from 28 July 2023 to 28 July 2026. These amendments will take effect from 1 January 2023.
Emission Factors
  • The Carbon Tax Act will be updated to include the Tier 2 (country-specific) emission factors developed by the Department of Forestry, Fisheries and Environment (DFFE). Further changes to the emission factors may be added to the Tax Laws Amendments Act if DFFE publishes further updates. The updated emission factors will take effect for DFFE’s 2023 reporting period, covering emissions during 2022. The amendments will take effect from 1 January 2023.
Carbon Tax Credit Trading 
  • In 2023, the National Treasury will consider stakeholder inputs on the possibility of a domestic market to trade tax credits created through the carbon tax. The consultation will focus on the building blocks needed to ensure seamless trading, including the legal nature of carbon credits as a financial asset; trading and post-trade market architecture; licenses for private carbon credit funds; and carbon credit certification.


Section 12I Industrial Policy Project Tax Incentive – Section 12I allows for a discretionary two-year extended compliance period providing taxpayers more time to meet minimum criteria where reasons for non-compliance are as a result of the Covid-19 pandemic. Government will consider legislative amendments to clarify the uncertainty brought about by the extension specifically with regards to the effect of the extension on minimum skills development criteria.

Economic Transformation and Empowerment – Continued support will be provided to black-owned enterprises through the Industrial Development Corporation (R22 billion), the National Empowerment Fund (R4.7 billion) and the Black Industrialist Scheme. 

DTIC Programmes – Ongoing support will be provided for existing business incentives with R18.9 billion in grant funding allocated to the Department of Trade, Industry and Competition over a three-year period to stimulate investment in machinery and equipment. The Automotive Investment Scheme has been allocated R728.8 million to support investment into alternative energy vehicle initiatives.

Urban Development Zone – The urban development zone incentive will be extended for two years to 31 March 2025 while a review of the incentive is completed. 


Diesel refund – The Road Accident Fund (RAF) levy for diesel used in the manufacturing process (such as for generators) will be extended to the manufacturers of food products. This will take effect from 1 April 2023, with refund payments taking place once the system is developed and will be in place for two years until 31 March 2025. This relief is implemented to limit the impact of power cuts on food prices.


We welcome the proposal for the extension of the section 11D Research and Development and the proposed incentive updates. Further to this, we welcome the much needed support announced towards private investments into renewable energy investments, but we do feel that the timelines for benefitting under the new measures may be too short term in nature to really make a meaningful impact on the current energy crisis. We are surprised that energy storage and inverter investments will not be eligible to be claimed under the rooftop solar incentive announced.
It is encouraging that National Treasury is showing it’s intention to implement measures to support a domestic market for the trading of carbon credits, and we are hopeful that this work can be expedited to provide more certainty and to fast-track the development of carbon offset projects in South Africa. 
For additional information please feel free to contact:Christo Engelbrecht
+27 84 513 8177.

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