The Strategic Industrial Project (SIP) programme launched in February 2001 will close at the end of July, the last date for submission of applications. The amount budgeted for the SIP programme – R10bn – has also been exhausted, resulting in an even earlier closure of the programme.

SIP’s main objective was to provide a targeted instrument to encourage projects that would have significant direct and indirect benefits for the South African economy. Government had, as targets for the SIP, the manufacturing, research & development and computer/computer related industries and wanted to grow those and concomitantly create employment.

Newton Cockcroft, an associate tax director at Deloitte. says that the real success of SIP was limited to the benefits created for SA’s manufacturing industries. "That’s as a result of the absence of regulations that cater for the computer, computer related, R&D industries. SIP therefore missed two of its three targets completely."

Despite missing two targets, SIP is still hailed as a huge success. The Government Gazette reported that 86 885 new employment opportunities were created and 38 new products or processes introduced, some patented and manufactured locally.

Though Government admits that international competition for foreign direct investment is tough, it believes it can be attracted through a lower corporate tax rate, coupled with a robust tax structure rather than through "the erosion of effective rates through a proliferation of special tax allowances".

Seeing that SA doesn’t offer many tax incentives – or even core specific incentives aimed at attracting large investments – it’s strange that SIP, as the only additional tax allowance for large investments, can be deemed to be part of a proliferation of special tax allowances.

Also, the fact that the SIP budget had been fully utilised even before the final deadline for the submission of applications shows that there’s a dire need for incentives for large-scale investments.

The Treasury should also bear in mind that though investors did receive additional tax allowances as a result of being SIP approved, they still pay PAYE, VAT, Customs & Excise duties and other taxes that contribute to fiscal income, Cockcroft says.

"The closure of the SIP programme will mean that the DTI – and SA’s Government – will no longer have a competitive advantage in attracting investment to this country and will have to rely solely on a low corporate tax rate and a robust tax structure to attract foreign direct investment.

"Other countries offer similar structures in addition to incentives in various forms – such as subsidies, tax grants, tax allowances and, even more aggressive, complete tax holidays."