Proposed relief to benefit public-private partnership
06 March 2014
Posted by: Author: Nicole Paulsen
Author: Nicole Paulsen (DLA Cliffe Dekker Hofmeyr)
Public-private partnerships (PPPs) generally refer to contracts
between a public sector institution/ municipality and a private party, in which
the private party assumes substantial financial, technical and operational risk
in the design, financing, building and operation of a project. The government
will normally be responsible for making the land available so as to support
public sector infrastructure projects while maintaining state ownership of the
land on which the project takes place.
The success of PPPs is dependent on the financial viability of
these projects and incentives and/or deductions for improvements in urban
development zones and industrial policy projects. Currently the provisions of the Income Tax Act, No 58 of 1962 (Act) hinder the
success of PPPs in that they require ownership of the land before any depreciation or allowances can
be claimed for improvements on that land. Accordingly, the private parties who do not own the
land on which the projects take place are not entitled to claim any incentives.
Accordingly, the Minister, in the 2014 Budget Speech, proposed
that relief be afforded to improve the financial viability of these projects.
In addition, the Minister has stated that the requirement of land ownership
limits the incentive for improvements in urban development zones and industrial
policy projects. The merits of allowing deductions where the taxpayer is not
the owner of the land will therefore be considered.
The proposed changes announced by the Minister will bring relief
to benefit the private sector participants, while maintaining state land ownership.
This article first appeared on cliffedekkerhofmeyr.com.