South Africa

Details

  • Service: Tax
  • Type: Business and industry issue
  • Date: 2011/09/12

IDZs get additional tax incentive for manufacturing projects 

The 2011/12 Budget speech by the Minister of Finance, Pravin Gordhan, highlighted tax relief for qualifying industrial policy projects, as part of the priority programmes required for implementing the New Growth Path.

The objectives of the Industrial Policy Action Plan and the New Growth Path, as set out by the Department of Trade and Industry, are:

 

  • creating jobs
  • reducing poverty
  • building infrastructure
  • expanding the economy.

 

The tax relief is aimed at the manufacturing industry. It will enable companies to deduct an enhanced investment and training allowance for an approved Industrial Policy Project (IPP). This deduction is in addition to any other allowable deductions in terms of the Income Tax Act (the Act), once certain qualifying requirements are met.

 

The allowance was first introduced into the Act for commencement of years of assessment ending on or after 1 January 2009. It is available in respect of both new industrial policy projects that apply only new and previoulsy unused manufacturing assets (greenfield projects) and projects that expand or upgrade existing industrial projects (brownfield projects). The Act emphasises that the project must upgrade an industry within South Africa by providing skills and development, using new technology and improving energy efficiency.

 

The Draft Taxation Laws Amendment Bill 2011 (DTLAB), issued on 2 June 2011, proposes enhanced deductions for projects located in an Industrial Development Zone (IDZ). It proposes that manufacturers who conduct greenfield projects, which are located in an IDZ, be able to claim a 100 percent deduction of the cost of manufacturing assets (55 percent in other areas). Those who conduct brownfield projects located in an IDZ will be able to claim a 75 percent deduction of manufacturing assets (35 percent in other areas).

 

This will enable manufacturing companies located in IDZs to claim tax allowances of up to 200 percent of the cost of acquisition of manufacturing assets. Qualifying manufacturing companies will also be able to claim an additional training allowance of up to R36 000 per employee in addition to the actual cost of training employees.

 

The importance of IDZs in South Africa was highlighted in the National Council of Provinces Budget Vote Speech, delivered by the Minister of Trade and Industry, Dr Rob Davies, in Parliament on 22 June 2011. He emphasised in this speech that manufacturing remains the backbone of the South African economy and that IDZs can be useful in promoting a more regionally diverse manufacturing industry.

 

There are three designated and functional IDZs in South Africa, namely in East London, Coega (near Port Elizabeth) and Richards Bay. The Industrial Policy Action Plan, issued by the Department of Trade and Industry in February 2011, has identified, as a key milestone, the establishment of an additional IDZ at Saldanha Bay.