Monday, August 25, 2008

DTI & Nat. Treasury to unveil R5bn tax incentives

Agreement had finally been reached between the Department of Trade and Industry (DTI) and the National Treasury on the structure of tax incentives worth R5-billion, which could be used to support large projects that meet South Africa’s industrial-policy objectives.

Speaking at a briefing last week to report back on the recent Cabinet lekgotla’s economic, investment and employment cluster deliberations, Trade and Industry Minister Mandisi Mpa-hlwa said that the programme should be finalised in September.

The tax scheme, which would replace the now oversubscribed strategic industrial projects incentive, was part of a series of new industrial financing measures being deployed following the adoption last year of a National Industrial Policy Framework (NIPF) and its associated industrial policy action plan, known as the IPAP.

This new architecture had been informed by a comprehensive review of all of the business incentives introduced in South Africa since 1996, and Mpahlwa indicated that the tax incentive was but one component of a larger package for which some R10-billion would be made available over the next three years.

He indicated that the tax incen- tive would add a large-project dimension to the existing incentive suite, which was currently relatively modest in both size and reach.

At present, there were only a handful of cross-industrial schemes in place, with the most prominent being the R700-mil- lion Enterprise Investment Pro-gramme (EIP), launched earlier this year. Another industrial upgrading scheme was reportedly under development.

DTI director-general Tshediso Matona said that the EIP, which was designed to support small and medium-sized manufacturers, as well as tourism investments valued at between R5-million and R200-million, would be reviewed and that additional resources could be set aside based on market appetite and perceived effectiveness.

Both the DTI and the National Treasury were intent on ensuring greater conditionality so that taxpayers’ money was not directed to projects that did not meet the NIPF’s intentions.

Indeed, Finance Minister Trevor Manuel pointedly made this point last month, when, in denying persistent suggestions that he did not support the NIPF, made apparent his irritation with the DTI’s handling of its implementation.

“Unless people can put a business plan on the table, that is costed and viable, where the benefits to all of us as citizens of the country are explained, you shouldn’t expect us to give the taxes that you earn and pay over to the State to ill-considered proposals,” Manuel said in Johan-nesburg last week.

He added that it was not about “blocking things that can make a difference”, but about raising the bar.

Also emerging was an effort to redesign some of the existing industry-specific incentives, notably for the automotive and clothing and textile sectors, as well as to introduce a range of additional targeted programmes.

The new automotive support instrument, which would replace the Motor Industry Development Programme, was currently being canvassed with stakeholders, and could be unveiled later this month, or early in September, once it had been approved by Cabinet.

Mpahlwa reported, too, that a new support programme had been developed for the embattled clothing and textile sector, and would focus on technology upgrading and employment retention. He said that a concessional loan facility would be set up under the aegis of the Industrial Development Corporation to support this initiative.

Other targeted incentives were also already on offer for the call-centre sector, as well as for the film and television industry.

Seven call-centre investments had already received support, with Mpahlwa indicating that this could lead to the creation of 10 000 direct jobs in the sector over the next few years. He added that there were a number of additional applications under consideration, which could swell that employment creation number even further.

He also announced that the NIPF and the IPAP would be aligned to South Africa’s three- year budgetary framework, with some R5-billion having already been set aside for industry incen- tives over and above the R5-billion tax incentive scheme.

by Terence Creamer

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