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Overview of the 12I Tax Incentive in South Africa

  • October 2013
  • 54 pages
  • Frost & Sullivan
Report ID: 1862615

Summary

Table of Contents

The aim of this market insight is to facilitate understanding of the 12I Tax Incentive in South Africa. The insight should provide knowledge in many areas, including: general overview of the 12I, including a brief outline of policy context and sector value; a description of the targeted beneficiaries and main objectives of the 12I; a discussion of the qualification process for the 12I with respect to the point system and qualifying criteria; an outline of the impact of the 12I on the private and public sectors; and a description of the drivers and restraints of the 12I incentive.

Executive Summary

The 12I Tax Incentive Strategically Aligned with the Industrial Growth Vision of South Africa
• The South African Department of Trade and Industry (DTI) has leveraged $X (R32 billion) in investments since 2010 through the 12I Tax Incentive.
• Due to growing recognition of this incentive, especially among Tier I companies, investments have grown by X% since 2012.
• The 12I is one of 16 tax incentives offered by the DTI, and aside from the Automotive Incentive Scheme (AIS), it offers the most incentives. Through the 12I and, more specifically, the investments that have been leveraged, a total ofX direct and X indirect jobs have been created between 2010 and 2012.
• This incentive is a key opportunity for enterprises in the manufacturing sector including clothing textiles and leather; chemicals, plastics, pharmaceuticals and cosmetics; automotive components; forestry, paper and timber; biofuels; metal fabrication, capital and rail transport equipment; agro-processing; aquaculture; downstream mineral beneficiation; and upstream oil and gas services
• The 12-I incentive will not cover projects that do not fall under the Manufacturing Division 3 SIC code or excluded products such as alcohol, tobacco and fire arms.
• The 12I is the second largest incentive offered by the DTI.

The 12I Rewards Innovation, Efficiency and Skills Development
• The 12I offers a total of $X(R20 billion) in tax breaks, which will be distributed among compliant manufacturing projects between 2010 and 2015. This will promote investments in manufacturing processes and skills development in both greenfield and brownfield projects.
• Eligible companies qualify by scoring points in specific criteria relating to innovation, SMME procurement, energy efficiency, business linkages, IDZ positioning, skills development, and job creation.
• The actual tax allowance for investments in manufacturing assets is rather significant, and ranges between $X (R350 million) and $X (R900 million per project, depending on the type of project and status awarded to the project). In addition, tax breaks of between $X (R20 million) and $X (R30 million) per project are available for skill development and job creation.
• Approximately X% of the 12I budget is still available for allocation.

The 12I is a Significant Incentive for Both the Public and Private Sectors
• Approximately X% of the 12I budget, $X (R20 billion), has been allocated to X projects since its inception in 2010.
• Awarded tax allowances have been very significant; PhytoAmandla, Rainbow Nation Fuels, and Sephaku have all been awarded in excess of $X (.. ). Sappi and Arengo X have been awarded in excess of $X (X). This financial support represents a serious effort by the DTI to promote innovation within the manufacturing sector.
• While application processes can prove lengthy for enterprises, the DTI claims to process applications in approximately X weeks from the point of submission.
• The DTI is expected to release a parliament report on the 12I to date in June or July 2013. This should include a discussion of awarded tax allowances, a discussion of project and sector support, and an impact of the 12I on the manufacturing sector thus far.
• Investments leveraged are over $X.

Introduction—12I Skill Development and Investments in Manufacturing Assets

The aim of this market insight is to facilitate understanding of the 12I Tax Incentive in South Africa. The report should provide knowledge in the following key areas:
• A general overview of the 12I, including a brief outline of policy context and sector value
• A description of the targeted beneficiaries and main objectives of the 12I
• A discussion of the qualification process for the 12I with respect to the point system and qualifying criteria
• An outline of the impact of the 12I on the private and public sectors
• A description of the drivers and restraints of the 12I incentive

Overview

The 12I is championed by the DTI and supports key sectors identified by the IPAP.

Context
The 12I tax incentive aims to accelerate economic growth in the manufacturing sector, specifically in areas of skill development, investments, and energy efficiency.

The manufacturing sector is a key component in driving long-term economic growth. In 2011, manufacturing contributed approximately % of South Africa’s gross domestic product (GDP). In addition, the sector provides a platform to achieve additional goals including job creation, skills development, and economic empowerment.

The 12I represents part of the national initiative to strengthen this sector by encouraging investments in new manufacturing assets and skills development by offering a significant tax allowance to compliant companies investing in greenfield or brownfield projects.

The 12I was announced by the DTI in 2010 and is part of a wider policy effort by the DTI to support a long term vision of South African economic development. One of the aims of the DTI is to transform the South African economy into an industrial and globally competitive economy (DTI). In order to achieve this vision, one of the key strategic goals is to “facilitate transformation of the economy to promote industrial development, investment, competitiveness and employment creation.” The 12I is one of the incentives used to accomplish this objective, and it supports key industries prioritized in the IPAP.

This incentive will run until December 2015.

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