New incentives to boost manufacturing

9 November 2010

The government has introduced a new tax incentive programme to raise the productivity of South Africa’s manufacturing sector by supporting investments in assets and subsidising training for employees.

The incentive, which falls under the Income Tax Act, will see the government foregoing R5.6-billion in revenue while extending R20-billion in tax incentives.

“What we’re doing today is providing allowances which will be measured in terms of the maximum, which will be deductable from the tax obligations of companies that qualify, which will be about R20-billion,” Trade and Industry Minister Rob Davies said in Pretoria on Monday.

The new incentive programme replaces the Strategic Industrial Projects (SIP) programme, which resulted in the creation of around 6 600 jobs while promoting private sector investment.

Davies said that while these were “quite significant results”, more needed to be done, and on a larger scale. “We’re seeking to have diversification and employment growth,” he said.

Improving capital investment

According to Engineering News, investors in “greenfield” projects (projects that use new and unused manufacturing assets) and “brownfield” projects (expansions or upgrades of existing projects) that involve capital of more than R200-million but less than R1.6-billion, can apply for a tax allowance equal to between 35% and 55% of a project’s value.

The incentive, which will run until 31 December 2015, offers a maximum of R900-million in tax breaks for greenfield projects, and a maximum of R550-million in tax breaks for brownfield projects.

Companies will also be able to deduct R36 000 per employee as part of a training allowance, with the maximum training allowance for a single company ranging from R20-million to R30-million.

Davies said the government was well aware of the need to improve capital investment in South African manufacturing. “It is a problem which is rightly important. Investment and training is vital in upgrading the manufacturing sector.

“The decline of credit extension to support investment in manufacturing was another reason for the creation of the incentive,” Davies added. “The restructuring of the Industrial Development Corporation will also be looked at.”

Qualifying criteria

The qualifying criteria for the tax incentives include companies “going green” by saving energy, and projects creating direct employment in the country.

According to Moeketsi Marumo of the Enterprise Organisation, a division of the Department of Trade and Industry, the tobacco, alcoholic beverages and arms and ammunition sectors are excluded from the incentive.

The applications will be assessed by an adjudication committee, which will present applications to the minister of trade and industry for approval within a six-week timeframe.

SAinfo reporter and BuaNews