How business can qualify for new tax incentives
National Treasury recently released draft regulations relating to tax incentives in support of government's industrial policy strategy. These tax incentives were announced in the 2008 Budget. The Revenue Laws Amendment Act, 2008 then inserted a new section 12I into the Income Tax Act.
The tax incentives comprise additional investment and training allowances for approved industrial policy projects. The projects that will qualify are greenfield and brownfield projects in the manufacturing sector (with some specific exclusions), that will spend certain minimum amounts on manufacturing assets (50% within four years of approval) and will upgrade an industry. There are limitations for companies obtaining other benefits and a requirement for a tax clearance certificate.
The minimum amounts to be spent on manufacturing assets are R200m for greenfields projects and at least R30m for brownfields projects. A project will be regarded as upgrading an industry if it provides skills development and utilises new technology resulting in improved energy efficiency.
If a project meets the qualifying criteria, an adjudication committee will consider its application on a points scoring basis. If five out of ten points are scored, a project will qualify for an additional investment allowance of 35% of the cost of manufacturing assets, up to a maximum of R550m for a greenfield project or R350m for a brownfield project. If eight or more points are scored, a project will have "preferred status" and its allowance will increase to 55% and the maximum amount claimable to R900m for a greenfield project or R550m for a brownfield project.
The additional investment allowances can be claimed in the year that the manufacturing assets are brought into use and are in addition to other allowances. If they increase recently incurred assessed losses, such increase may be enhanced by a notional interest amount.
The point scoring criteria cover the following: innovative processes, improved energy efficiency, general business linkages, SMME utilisation, direct employment creation and skills development. Greenfield projects can also score for being located in an industrial development zone.
The total additional investment allowances available under the programme will be R20bn. The cut-off date for applications is December 31 2014.
Training costs incurred for the furtherance of an approved project, within six years of approval, will qualify for an additional training allowance. Such allowance may not exceed R36 000 per employee or a total of R30m for projects approved with preferred status or R20m for those without.
*Tim Desmond is a director of tax and commercial departments at Garlicke & Bousfield Inc