Grants and Incentives
The objective of this year’s Budget remains the focus on transformation of the economy and promoting industrial development, investment, competitiveness and employment creation. In the past specific incentives were created to provide assistance to industries to reach our medium terms goals. The announcement of a Carbon Tax in this year’s Budget speech makes it less clear on how government aims to promote industrial development and the overall competitiveness of the South African economy.
Some of the highlights of the Budget, from an incentives perspective are listed below:
Employment Tax Incentive
A youth employment tax incentive will be tabled in parliament within the course of this year. This incentive will be aimed at providing the youth with the opportunity to enter the labour market, gain valuable experience and access career opportunities. It will be a graduate tax incentive at the entry-level wage, falling to zero when earnings reach the Personal Income Tax threshold.
We welcome any initiative to support job creation. However, any system must not be an administrative burden or too difficult to administer.
Research and Development
There seems to be a perception that the section 11D research and development tax incentive is being abused, for example, in respect of routine upgrades. Based on this, it has been announced that the criteria for eligibility will be adjusted to ensure that the incentive is available only in support of the initial policy intention, namely to facilitate South Africa’s establishment as an innovation hub.
Although abuse of the tax system should always be prevented, it is important that, in a globally competitive economy, our tax regimes and incentives are competitive when compared to global incentives. The revised section 11D is globally competitive except for the rate which is not that competitive anymore.
It is of importance specifically to the software development industry that section 11D remains competitive and unchanged.
The Jobs Fund
It was announced that 65 projects were approved under the Jobs Fund incentive and a total of R3.3 billion has been paid out in the form of incentives. It is not clear how many jobs have been created through this initiative.
Special Economic Zones
It has been announced that the 10 designated Special Economic Zones (SEZ) will enjoy the following benefits:
- A 15% Corporate Income Tax rate for businesses;
- An employment incentive allowing for a tax deduction for employment of workers earning less than R60 000 per year; and
- An accelerated depreciation allowance for buildings in these areas, based on the existing regime for urban development zones, to encourage developers to invest more in industrial premises.
We welcome the fact that more clarity has been provided with regard to SEZs and trust that the location for the SEZs will be well thought through and properly investigated.
Industrial Development Zone
The first phase of construction of the OR Tambo International Airport Industrial Development Zone (IDZ) is scheduled to start in 2013/2014. The Saldanha IDZ is scheduled to be designated in March 2013.
Tax policy research projects
It has been announced that National Treasury will be undertaking a research project to assess the effectiveness of various tax incentives. This is of the utmost importance in the light of the recently promulgated section 12P that provides for the exemption from normal tax of qualifying government grants.