Tax Incentives Available to Business
27 December 2010
Posted by: Author: Ruaan Van Eeden
Tax Incentives Available to Business
Dig a bit deeper into the Income Tax Act, and you’ll find a number of hidden gems in the form of tax incentives
There is a wide variety of tax and cash incentives on offer by the South African government, which could assist significantly in growing the manufacturing and labour intensive sectors.
Tax incentives that are available in the Income Tax Act, and cash incentives on offer by the Department of Trade and Industry (DTI), include incentives for research and development—a key factor in enhancing competitiveness in South Africa.To aid companies in their quest to develop and discover novel information and new inventions,Section 11D of the Act allows for a deduction of up to 150% for qualifying expenditure incurred.
The Industrial Policy Project(IPP) incentive aims to assist large industrial projects by providing a tax deduction of 35% or 55% for new and unused manufacturing assets, depending on the status of the project.
The IPP incentive is aimed at industrial projects with an investment in manufacturing assets above R200 million in the case of greenfield projects, and at least R30 million in the case of brown field projects.The maximum additional investment allowance under the IPPis R900 million, which equates to spend on manufacturing assets of atleast R1.6 billion.
An aspect of the section 12I legislation, which potential applicants should be aware of, is that in the event of approval being withdrawn by the Minister of Trade and Industry, the taxpayer may be liable for additional tax of up to 200%. This could potentially be the case where material facts of the project change; the company fails to comply with any requirements of Section 12I; failure to submit progress reports on a timely basis,or where fraudulent information was provided to the DTI.
As part of the initiative to become more energy efficient, the South African government has decided to incentivise reductions in energy usage.The Section 12L incentive will allow companies a tax deduction determined by a set formula pertaining to the amount of energy saved.
The deduction will be available until 1 January 2020, but it has not yet been announced when this Section will come into operation, or when the regulations will be issued.Furthermore, clean development mechanism (CDM) projects in South Africa are increasing, and as part of the South African government's drive to promote a "greener” environment, it is lending these projects a hand by wholly exempting the revenue derived from the sale of Certified Emission Reductions (CER).CDH Candidate Attorney Mari Wichmann notes that the film sector has been identified as a strategic sector by government, as this sector contributes directly to the economic development and has significant spill over potential into other industries.
A tax incentive exists for private investors, which enables them to claim all pre-production and post production costs equal to the investment made in terms of Section 24F of the Act. Section24F has however been open to abuse in the past, and it is advisable to apply for an Advance Tax Ruling before any Section 24F expenses are incurred or deducted.She says that in addition to the above tax incentives, the DTI have a range of cash incentives available to the manufacturing and labour intensive industries who may not qualify for the aforementioned tax incentives.
Tax and cash incentives support economic growth and make it easier for taxpayers to succeed in the manufacturing and labour intensive industries.Where possible,taxpayers should consider whether they qualify for any of these incentives.
Source: By Ruaan van Eeden (Tax Breaks)