New tax incentive for manufacturing sector

Monday, November 8, 2010

Pretoria - Government introduced a new tax incentive programme on Monday which seeks to improve the productivity of the country's manufacturing sector by supporting investments in assets as well as training for employees.

"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 (dti) Minister Rob Davies said on Monday.

The incentive replaces the Strategic Industrial Projects (SIP) which was launched by government to attract private sector investment. The SIP resulted in the creation of 6 600 jobs.

Davies said while these were "quite significant results" more needed to be done on a larger scale. "We're seeking to have diversification and employment growth."

The incentive, which will run until 31 December 2015, offers R900 million for new industrial projects that use new and unused manufacturing assets (Greenfield investments) as well as R550 million for Brownfield projects which provide for expansion or upgrades of existing projects.

Minister Davies said he was well aware of the need to improve capital investment in the manufacturing sector which he described as a major challenge that should be addressed.

"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. The restructuring of the Industrial Development Corporation will also be looked at.

The loss of the fiscus, as a result of the incentive, in terms of tax revenue foregone, will be R5.6 billion as was announced in the budget in 2008.

Among some of the criteria to receive the tax relief includes companies going green by saving energy and projects creating direct employment in the country.

According to Moeketsi Marumo of the Enterprise Organisation, which is a division of the dti, sectors excluded from the incentive are the tobacco, alcoholic beverages and arms and ammunition sectors.

Three chemical companies as well as a cement company have submitted their applications to the department. The applications would be looked at by an adjudication committee which will in the end present the application to the minister for approval in a six week timeframe. The appointment of the committee will be finalised soon.

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