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Tax incentive - depreciation allowances

Posted On Wednesday, 28 February 2001 03:01 Published by
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CAPE TOWN The R3bn tax incentive for strategic manufacturing projects announced by Finance Minister Trevor Manuel in his budget speech last week...

CAPE TOWN The R3bn tax incentive for strategic manufacturing projects announced by Finance Minister Trevor Manuel in his budget speech last week will be granted to approved projects in the form of additional depreciation allowances for manufacturing plant and machinery, it emerged in Parliament yesterday.

Manuel said that the incentive would run for four years and be targeted at strategic industrial projects that met agreed criteria, including job creation. Allowances of either 50% or 100% of an approved investment would be granted.

The GM of tax law administration at the SA Revenue Service, Kosie Louw, told Parliament's finance committee that the effect of the 100% allowance would be that companies would be able to write off twice the cost of a manufacturing asset over five years, with the full cost plus the normal 20% being written off in the first year.

With a 50% allowance, half the cost plus the normal 20% would be written off in the first year.

Louw said the asset would have to be brought into use within three years of approval of a project.

Losses could be carried forward, although the period allowed for this has not yet been determined. It will, however, be longer than three years, he said.

Normal recoupment provisions would apply on the sale of the assets for which the allowance was claimed, he said.

The date for the implementation of the incentive has not yet been decided as legislation has to be finalised, an adjudicating committee established and projects approved.

National treasury director-general Maria Ramos said that the adjudicating committee would evaluate projects in line with strict qualitative and quantitative criteria.

Ramos stressed the need for the process to be transparent and accountable with the identification of, and adherence to, strict working definitions.

Government wanted to avoid open-ended incentives, which was why a specific amount was allocated and the time-period was limited.

'The additional initial allowance will be limited to the assets owned directly by the taxpayer in the production of his income, and in carrying on his sole trade as a manufacturer,' Ramos said.

SA Revenue Service commissioner Pravin Gordhan said there had been a significant increase in tax receipts from companies, but that there was a long way still to go in terms of tax compliance.

High net-worth individuals were having 'a jolly good time in SA at the moment' he said, as compliance was not what it should be. For example, bonuses were being paid directly into credit card accounts in order to avoid paying tax.

Manuel also announced that tax loopholes would be closed and that directors of private companies would lose their status as provisional taxpayers and be incorporated into the PAYE system.

Louw said one possibility was to base the tax on the previous year's directors' fees averting problems arising from the fact that private company directors' remuneration was often determined at the end of the financial year only.

Publisher: Business Day
Source: Business Day
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