Budget Highlights – Grants and Tax Incentives

The Minister of Finance presented his annual 2014 budget on 26 February 2014.  While the global economic outlook for South Africa remains unsteady, it is encouraging that continued and sustained support will be provided to business by the Government over the medium to long term. We have set out below some highlights and insights on the budget from a grants and tax incentives point of view.

Manufacturing grants and tax incentives – Manufacturing development incentives (including programmes such as the Manufacturing Competitiveness Enhancement Programme) are allocated a combined value of R10.3 billion over the next three years. There will therefore be continued support under the existing Department of Trade and Industry manufacturing programmes over the medium to long term.

No budget allocation for the replacement of the MIP – There are currently no available incentives for first time investors setting up production facilities with an investment value of less than R200 million. It was expected that a new incentive will be introduced during the first half of 2014 to replace the previous Manufacturing Investment Programme (suspended in September 2013). One option for Government will be to revise one of their existing grant programmes to support new investment projects in 2014/15.

Research and Development incentives – The Minister proposed some anticipated amendments to the R&D Tax Incentive.  The revised s11D will cater specifically for clinical trials (backdated to 1 Jan 2014) and will clarify funding of R&D.  There is also a proposal to include green technology projects as part of the R&D Tax Incentive. Additionally, the Support Programme for Industrial Innovation (SPII) which provides cash incentives for technological innovation has been allocated additional funding and will reopen for submission of applications.

Special Economic Zones – An amount of R3,6 billion is allocated to special economic zones. This allocation will go towards support for feasibility studies and infrastructure programmes to be undertaken by existing and future designated special economic zones. No additional incentives were announced for new investors to set up in special economic zones; however investors may still benefit under the current specific income tax incentives available under sections 12I, 12S and 12R.

Carbon Tax – Implementation of the proposed carbon tax is postponed to 2016.

Employment tax incentive – Government introduced the employment tax incentive on 1 January 2014 to help reduce youth unemployment. To enhance this incentive, SARS is developing a mechanism to reimburse firms in instances where the incentive exceeds PAYE payable.

Proposed New Tourism Incentive – It is expected that the Department of Tourism will introduce a new tourism incentive programme in 2014. An amount of R509,6 million is allocated over the next three years in support of this programme.

Biofuels Incentive– It is expected that a new subsidy will take effect in the second half of 2015 and will work through the fuel levy.

These proposals will be drafted into various guidelines, regulations and/or legislation over the coming months. We will keep you informed on any further developments.

Catalyst Solutions continues to partner with our clients and industry bodies to ensure that South African companies can maximise the various grants and tax incentives opportunities on offer.

Please let us know if you have any questions on this year’s budget or any other grants and tax incentives related matters.