Grants and Incentives |
The main focus of the allocations to incentive programmes in this year’s budget is job creation and economic growth.
The budget, through the Manufacturing Competitiveness Enhancement Programme, will inject an additional R5.8 billion in incentives into the manufacturing sector. From an incentives’ perspective, this is the highlight of this year’s budget and some detail regarding this programme is included below.
It is also interesting to note that Government’s small enterprise financing activities have been consolidated under a new subsidiary in the Industrial Development Corporation (IDC). It is similarly important to note that the IDC’s spending over the medium term period will focus on green industries, mining and minerals beneficiation, industrial infrastructure and cross-sectoral projects. This is a further indication of the areas in which, in government’s opinion, job creation and economic growth can best be obtained.
Department of Trade and Industry (DTI) specific incentives
As part of the economic competitiveness and support package that was announced in the Medium-term Budget Policy Statement, R8 billion in total has been allocated over the medium term to the DTI to stimulate the economy.
Incentive allocations, by focus area, are as follows:
|
|
Medium Term Expenditure Estimates |
|||
|
|
2011/2012 |
2012/2013 |
2013/2014 |
2014/15 |
|
Export Marketing and Investment Assistance |
R168,6 mil |
R182 mil |
R189 mil |
R200 mil |
|
Broadening Participation Development Incentives |
R118,4 mil |
R135 mil |
R147 mil |
R155 mil |
|
Critical Infrastructure Programme |
R118,5 mil |
R182 mil |
R190 mil |
R203 mil |
|
Manufacturing Development Incentives |
R1 839 mil |
R3 227 mil |
R4 074 mil |
R4 657 mil |
|
Services Sector Development Incentives |
R333,4 mil |
R439 mil |
R504 mil |
R555 mil |
|
Sector Development Program |
R3,1 mil |
R3,4 mil |
R3,3 mil |
R3,4 mil |
|
Special Economic Zones – Investment Incentives |
0 |
R500 mil |
R750 mil |
R1 000 mil |
The Manufacturing Competitiveness Enhancement Programme (MCEP)
As indicated above, this is the major highlight of this year’s budget from an incentives’ perspective. The department’s proposed MCEP receives R5.8 billion which is earmarked for manufacturers that are in distress from the effects of the financial crisis.
This programme aims to provide a credible support package to
- stabilise and grow output;
- grow employment; and
- grow confidence
in the manufacturing sector in the face of uncertain local and export market conditions arising from the global economic crisis.
Furthermore, the programme seeks to encourage firms to innovate and invest in activities that will enhance their productivity and bolster their competitiveness. It will specifically target firms in downstream manufacturing sectors that are either labour-intensive or exposed to intense international competition.
Special Economic Zones
Tax relief is under consideration for businesses that invest in these zones, including a reduction in the corporate income tax rate and support for employment and training expenses. An allocation of R500 million in 2013 and R2.25 billion in the medium term has been made available for this initiative.
Other incentives
The Jobs Fund
The second round of project applications will be announced shortly. Only R1 billion of the budget of R9 billion allocated to the Jobs Fund has been spent.
Urban Development Zone (UDZ) incentive
In terms of current legislation, the incentive available for buildings situated in Urban Development Zones, will be suspended from 2014 onwards. It has been announced that this section’s closing date may be extended.
Other changes
Industrial policy incentives – section 12I
Two changes to this section have been proposed:
- The requirement for tax clearance certificates for all connected parties has been deemed to be an administrative burden and this requirement will be relaxed; and
- Companies should submit monitoring reports until the allowance is exhausted or until all requirements of the programme are met.
Taxation of government grants
It was noted in the Budget speech that, unless a specific exemption exists in section 10(1)(y) of the Income Tax Act, a government grant will be subject to tax when it is paid to a qualifying entity. Government is currently in the process of determining which grants should be exempt to avoid undue taxation. Tax expenditure relating to tax-exempt grant funding will not be deductible, depreciable or allowed as any other tax offset against the grantee’s taxable income.
Comment:
We welcome the 63.7% increase in incentive support that is offered by The Enterprise Organisation (the incentive administration division of the DTI). The majority of the increase in spending relates to the new MCEP and the proposed introduction of Special Economic Zones.
It will, however, be important to establish how the R5.8 billion, which has been allocated to the MCEP, will be distributed and how quickly and efficiently this will be implemented and made available to our ailing manufacturing industry.
