Section 12I Tax Allowance Incentive (12I TAI)
What you need to know about Section 12I Tax Allowance Incentive (12I TAI).
In governments continuous effort to stimulate the industrial sector in line with the objectives of the National Industrial Policy Framework. The government has introduced the Section 12I tax allowance, which is two separate, yet similar incentive programmes for the manufacturing industry. Namely: The Industrial Policy Project investment and the training allowance incentive.
The objectives of the incentive programme namely the Section 12I tax allowance are to support:
- Investment in manufacturing assets, to improve the productivity of the South African manufacturing sector; and
- Training of personnel; to improve labor productivity and the skills profile of the labor force.
The Industrial Policy Project Investment (Investment Allowance)
This incentive is an investment allowance calculated on qualifying assets that may be deducted from taxable income in the financial year therefore
to qualify for this tax allowance you must meet the following criteria:
Section 12I tax allowance criteria.
- The minimum investment in Qualifying Assets required is R50 million for a greenfield project and an additional investment of R30 million for a brownfield project.
- Manufacturing assets to be acquired and contracted for on or after the date of approval. 12I, par. 1 of the ITA
- The investment must be classified under, “Section C: Manufacturing” in version 7 of the Standard Industrial Classification Code (“SIC Code”)
For the purpose of this act Qualifying Assets are defined as:
new and unused buildings and new and unused plant & machinery contracted for and acquired after the date of approval of the Section 12I tax allowance and brought into use within 4 years from the date of approval (implementation period).
Greenfield vs Brownfield Investments
The Dti has divided the Section 12I tax allowance criteria into two groups, the Greenfield investments which are new industrial projects that utilize only new and unused manufacturing assets, and the Brownfield investments which are expansions or upgrades of existing industrial projects.
Preferred Status vs Qualifying Status
The Section 12I tax allowance is then divided into two status’s, the preferred status and the qualifying status after that the Dti calculates statuses using a point system. For example, a company could fall under Greenfield projects with preferred status.
The Dti calculates points based on the following :
- Innovation (1 Point)
- Improved Energy Efficiency: Cleaner Production Technology (2 Points)
- Business Linkages (1 Point)
- SMME Procurement (1 Point)
- Skills Development (Training of Employees) (2 Points)
- Located in a Special Economic Zone (SEZ) (Point)
Points for a Qualifying Status: 4,5 or 6 out of 8 points for a Greenfield project and 7 or 8 out of 8 points for a Brownfield project.
Points for a Preferred Status: 7 or 8 out of 8 points for both the Greenfield project and Brownfield project.
Before your Section 12I project begins you must apply for the Section 12I tax allowance consequently this process can take 6 to 12 months to complete. There are many application forms in this process, therefore, make sure to start the process as soon as possible.
How to calculate the tax allowance
First of all, the Dti will send an “its approved letter” which will tell you the exact amount approved for your qualifying assets and secondly Sars will publish notices regarding companies that were approved for the section 12I tax allowance, therefore, there will be no confusion on the exact amount the Dti approves.
- 55% of Qualifying Assets or a maximum of R900 million investment allowance with a Preferred Status. (100% if located in a Special Economic Zone of “SEZ”)
- 35% of Qualifying Assets or a maximum R550 million investment allowance with a Qualifying Status (75% if located in a Special Economic Zone or “SEZ”)
- 55% of Qualifying Assets or a maximum of R550 million investment allowance with a Preferred Status. (100% if located in a Special Economic Zone of “SEZ”)
- 35% of Qualifying Assets or a maximum R350 million investment allowance with a Qualifying Status (75% if located in a Special Economic Zone or “SEZ”)
Greenfield, Brownfield projects, Preferred Status, and Qualifying Status projects qualify for the training allowance. The Dti calculates training allowances as the lesser of:
- Actual total training cost or
- R36 000 per full-time employee
Most importantly companies may claim training allowances when training expenses have incurred.
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