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At PwC, our team of tax and incentives experts can assist your company to obtain and maximise tax incentives and government grant benefits available in terms of the Income Tax Act or the various incentive programmes offered by the Department of Trade and Industry (the dti). The process of successfully applying for any of these benefits requires an in-depth technical knowledge of the various incentive programmes, including their rules and the relevant tax legislation and regulations.
- Manufacturing Competitiveness Enhancement Programme (MCEP)
- Section 12I tax allowance
- Research and development (R&D)
- Automotive Investment Scheme (AIS)
Manufacturing Competitiveness Enhancement Programme (MCEP)
This programme is specifically aimed at improving competitiveness within the manufacturing industry (SIC3). MCEP is administered by the Department of Trade and Industry (the dti) and offers a cash grant of between 30% and 70% of the qualifying investment cost, which includes the cost of expanding and/or upgrading their current manufacturing facilities. The percentages of this grant are determined on the manufacturing value-add (MVA) and are calculated from the latest financial statements of the applying entity.
The qualifying investment costs may include expenditure on the following:
- Machinery and equipment;
- Building extensions and improvements;
- Forklifts;
- Energy efficiency and renewable energy;
- Skills development;
- Process, product or logistics improvement; and
- Information technology systems.
Key requirements that need to be met in order to qualify for this programme include classification as a manufacturer (SIC 3), BBBEE level 4 or higher or the submission of a plan to show commitment to the achievement thereof, and employment retention. According to the new guidelines that were released earlier this year, the leniency in respect of a plan will fall away effective 1 June 2015.
Applications are entity-specific and need to be submitted at least 60 days prior to the commencement of production.
Section 12I tax allowance
Another incentive available for the manufacturing industry is the section 12I tax allowance. It is also administered by the dti and is a once-off allowance for capital investment in manufacturing buildings, plants or machinery. This allowance provides for both greenfield (new) and brownfield (existing) projects and requires a minimum spend of R200 million for greenfields and R30 million for brownfields.
The percentage allowance obtainable is either:
- 35% for projects with ordinary status;
- 55% for projects with preferred status;
- 75% for projects with ordinary status in an IDZ; or
- 100% for preferred status in an IDZ.
These percentages are calculated on points achieved from a scorecard of which the components are as follows:
- Improved energy efficiency;
- Innovative manufacturing processes;
- General business linkages;
- Direct job creation; and
- Skills development.
Applications for this allowance are project-specific and need to be submitted before the start of production of the project.
Research and development (R&D)
This programme provides for a 150% tax deduction on all operational expenditure incurred in respect of R&D activities undertaken within the Republic of South Africa.
Pre-approval is required from the Department of Science and Technology (DST) prior to claiming the deduction. Only costs incurred from the date of submission of an application to the DST will be allowed. Therefore, it is very important that an application is submitted to the DST before any R&D activities are undertaken or commenced with.
Such activities include the following:
- The discovery of non-obvious scientific or technological knowledge; or
- The creation of any:
- Patentable inventions;
- Registerable designs;
- Computer programs; or
- Knowledge essential to use the invention, design or computer program; or
- Developing or significantly improving any invention, design, computer program or knowledge.
Automotive Investment Scheme (AIS)
Light-weight motor vehicle manufacturers and vehicle component manufacturers that are part of the OEM supply chain can benefit from a cost-sharing cash grant offered by the dti. AIS affords successful applicants 20% of the value of a qualifying investment in manufacturing assets and an additional bonus of up to 10% of the value of any qualifying investment in or significant development contribution to the automotive sector.
the dti is expanding the AIS programme to include medium and heavy motor vehicle manufacturers and vehicle component manufacturers from August 2014.
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Africa Clients and Markets Tax and Legal Leader, PwC South Africa
Tel: +27 (0) 83 406 1820