Treasury unveils tax breaks for industry

The tax incentives were mooted in last year's budget and replace the Strategic Investment Programme (SIP), which supported industrial investments in the past and expired at the end of 2005.

They are aimed at larger industrial investments and complement the Enterprise Investment Programme, launched last year, which earmarks small and medium-sized manufacturing and tourism investments valued between R5m and R200m for funding.

Deloitte director Duane Newman said the incentive was clearly designed with bigger projects in mind. Under the SIP, projects with a value capped at R600m qualified for funding, while the tax incentive earmarks projects capped at R1,6bn.

“They are clearly targeting mega projects. A project size of R1,6bn can qualify for a tax break of up to R250m, so that clearly could make a difference to someone's project,” he said.

In the draft regulation, the emphasis is heavily slanted towards projects that promote job creation, skills and enterprise development and energy conservation.

According to a point system, an industrial policy project will achieve “qualifying status” if it achieves at least five out of a total of 10 points and a “preferred status” if it achieves at least eight out of a total of 10 points.

Projects with qualifying status may deduct from their taxable income an additional 35% of the costs of the investment in manufacturing assets, up to a maximum of R550m, while projects with preferred status may deduct 55% of the cost of the investment in manufacturing assets, up to a maximum of R900m.

A project can score two points each if it advances energy efficiency, direct job creation, skills development and procurement from small and medium sized businesses.

Innovative processes, business linkages and, in the case of greenfield investments, being in an industrial development zone would each score a project one point.

But while Newman welcomed the broad thrust of the tax incentive, he said its alignment with the national industrial policy framework was tenuous at best.

“There is no link between the tax incentive and broad-based economic empowerment requirements, which means there is a disconnect between the tax incentive and industrial strategy.”

In terms of black economic empowerment ratings, firms were required to procure from empowerment companies, Newman said, while industrial projects needed to procure from small and medium sized enterprises to qualify for the tax incentive.

So firms were required to follow two procurement systems, which would push up the cost of compliance.

The draft regulation also makes no mention of the lead sectors — capital equipment and metals; automotives and components; chemicals and pharmaceuticals; and forestry, paper and pulp and furniture — identified for prioritisation in the industrial policy.

Source: Business Day

Published courtesy of