Incentives: Understanding how grants and incentives can add value to your business
By Marinda Engelbrecht and Duane Newman
Government departments offer an array of incentive schemes to stimulate and facilitate the development of sustainable, competitive enterprises by providing accessible incentives that effectively support national priorities. A variety of incentive schemes seek to support the development or growth of commercially viable and sustainable enterprises through the provision of either funding or tax relief, thereby ensuring the creation of new and sustainable jobs. The intention is to increase participation in various areas of development. Most of the incentives are housed within the Department of Trade and Industry, with a few others in other government departments.
Incentive categories generally mirror the stages involved in project development, visually:
- Conceptualisation of the project, including feasibility studies and research and development;
These are incentives available to private sector enterprises that invest in the creation, design and improvement of new products and processes. Such businesses conduct investigative activities with the intention of making a discovery that can either lead to the development of such new products and processes or to the improvement of existing products.
- Capital expenditure, involving the creation or expansion of the productive capacity of businesses; and
These are incentives available to companies that want to acquire or upgrade assets in order either to establish or expand the business’ productive capacity.
- Competitiveness enhancement, involving the introduction of efficiencies and whetting the competitive edge of established companies and commercial or industrial sectors.
These are incentives available for investments which facilitate increased competitiveness, sustainable economic growth and development in a specific sector.
Reasons why incentives and grants are not utilized:
- Companies are not aware of the incentives
- Incentives change and rules are complex
- Overlaps are misunderstood
- Rules often prejudice companies
- Government officials are not aware of all the incentives
Knowledge of the rules of schemes is poor
- Companies are cynical of government’s intention – why would government give money away?
- Not worth applying for benefit due to “red tape”
- Often deemed to be a “cherry on the top”
- Money takes too long to be received
EY Tax Quantitative Services
EY has the necessary experienced resources to assist clients through feasibilities, application and monitoring requirements for optimisation of available incentives.
Our Holistic Approach to Incentive Optimisation
| MIDP/APDP |
EIP - MIP
| NIPP |
S12L - energy
| MIDP |
|Tariff and Trade support||MIDP, DCCS, rebates, drawbacks|
|Non-tariff government support||Permits, barriers, China quotas|
|Production subsidies||PAA, APDP, EIP|
|Regional subsidies||RIDP, IDZ's|
|Tax Concessions||S37H, S12I, S12K, S12L|
|R&D Support||S11D, Innovation Fund, SPII|
|Infrastructure Support||MIG, CIP, Green Fund|
|Competitiveness and Training grants||SSP, SDL, SPF, CF, S12I, Jobs Fund, Green Fund, MCEP|
BBSDP - Black Business Supplier Development Programme
CG - Competitiveness Fund
CIP/MIG - The Critical Infrastructure Programme/Municipal Infrastructure Grant
DCCS - Duty Credit Certificate Scheme
DSM/IDM – Demand side management/Integrated demand management
EIP-MIP - Enterprise Investment Programme/ Manufacturing Investment Programme
EMIA - Export Market and Investment Assistance
IDZ – Industrial Development Zone
MCEP - Manufacturing Competitiveness Enhancement Programme
MIDP/APDP - Motor Industry Development Programme/ Automotive Production and Development Programme
NIPP - National Industry Participation Programme
PAA - Productive Asset Allowance
PI – Production Incentive
RIDP/IDZ - Regional Industrial Development Programme /Industrial Development Zones
SDL - Skill Development Levy
SEZ – Special Economic Zone
SPII - Support Programme for Industrial Innovation
SPF - Sector Partnership Fund
SSP - Skills Support Programme
S11D - Deduction in respect of scientific or technological research and development
S12I - Additional investment and training allowances in respect of industrial policy projects
S12L - Deduction in respect of energy efficiency savings
S12K - Exemption of certified emission reductions
THRIP - Technology and Human Resources for Industry Programme
Summary of Significant Incentives:
MCEP – Manufacturing Competitiveness Enhancement Programme
Grant from the Department of Trade and Industry (“DTI”) – maximum of R50 million. Treated as exempt from tax but reduces the cost of the trading stock or allowance of asset acquired as a result. Maximum benefit of R36 million after 28% tax.
EIP – Enterprise Investment Programme
Grant from DTI – maximum of R30 million on capital cost. For investments under R200 million, while section 12I of the Income Tax Act, 1962 (“the Act”) is for investments above R200 million. Taxpayers can still apply for the incentive if the investment is above R200 million. Maximum benefit of R21.6 million after 28% tax.
CIP – Critical Infrastructure Programme
Grant from DTI – maximum of R30 million. Treated as exempt from tax but reduces the cost of the trading stock or allowance of asset acquired as a result. Maximum benefit of R21.6 million after 28% tax.
Section 12I of the Act
Section 12I of teh Act is an income tax allowance for industrial policy projects. The potential benefit of the incentive depends on the qualifying status of the project:
- Preferred status – Additional 55% of the cost of the manufacturing assets or 100% if the project is located in an IDZ
- Qualifying status - Additional 35% of the cost of the manufacturing assets or 75% if the project is located in an IDZ
The status is dependent on the number of points earned under various categories. The point scoring criteria used depends on the classification of the project (Greenfields or Brownfields).
|Criterion||Greenfields Maximum points||Brownfields Maximum points|
|Located in IDZ||1|
|Training of employees||2||2|
Section 11D of the Act
Section 11D of the Act is an income tax allowance for qualified research and development. An additional 50% of qualified expenditure can be claimed as a tax deduction should the project meet the qualified criteria.
Questions to ask yourself
- What industry are you in (manufacturing is given priority)?
- What future activities & big projects are you undertaking?
- When will the projects be undertaken – when will you start spending money/ordering equipment?
- Major categories you need to look at are:
- Capital Expansions
- Energy efficiency
- Infrastructure spend
- Large IT spend
- Sources of information would include R&D budgets, capital budgets/plans, and sustainability teams.
- Important to determine what is critical for future growth of company, as an incentive or incentives could stimulate marginal projects.
- When in doubt… ask. If you don’t ask, you don’t get.