New industrial projects could soon claim as much as R900m back in tax allowances, while expansion projects could claim up to R550m.

The Department of Trade and Industry are in the final stages of developing a new tax based incentive programme which will see qualifying Industrial Policy Projects benefit from a tax based incentive which represents additional manufacturing allowances.

Similar to the Strategic Investment Project incentive programme, the new programme will be aimed at large manufacturing based investments. New investments (greenfields), together with expansions of existing operations or upgrades to existing operations (brownfields), may qualify for the incentive benefits. New investments require a minimum total capital investment of over R200 million, while expanding existing operations or upgrades to existing operations require a minimum R30 million investment, subject to additional criteria, in order to qualify.

A qualifying investment project may secure either a “preferred” status or “qualifying” status depending on how many points the project scores in terms of a number of key measurement areas. The point scoring criteria range from employing innovative processes, improving energy efficiency to general business linkages, procurement, and SMME utilisation. Direct employment creation and skills development are also taken into account.

In addition, new industrial projects can also score if they are located in an industrial development zone. According to the point system, an Industrial Policy Project would achieve “qualifying” status if it achieves a minimum of five out of 10 points and a “preferred” status if it achieve at least eight out of a total of 10 points. Training costs incurred for an approved project will qualify for an additional training allowance of up to R36 000 per employee which could be deducted from taxable income with the total training allowance being dependent on the status of the project. In the case of a “qualifying” project this allowance is R20 million, and in the case of one with “preferred” status, it is a total of R30m for the project.

Approved investment projects will have four years in which to capitalise the approved investment, where the additional manufacturing allowance is claimed in the year the investment is brought into use. The total allowance for projects with “preferred” status is R900 million, and R550 million where approved with “qualifying” status. Expanding operations may receive maximum allowances of R350 million to R550 million dependent upon the approval status of the project. The Industrial Policy Project incentive programme is expected to be launched towards the end of 2009.

Gregory Billson, IQuad Investment Incentives (Pty) Ltd