Introduction and Background

The Urban Development Zone (UDZ) tax incentive is a Nationa Government initiative aimed at revitalizing inner city areas by attracting capital investment. The allowance is applicable to investors who erect new buildings or refurbish existing buildings within the demarcated Urban Development Zone for the purposes of trade. It enables such developers to deduct expenditure over a specified period, that is, 5 years for refurbishments and 17 years for new buildings. The incentive is available until the 31st of March 2009. Only developers who would have completed construction and started trading by this date will be eligible to claim the incentive.

Implementation of UDZ Scheme in Durban

At a local level, eThekwini's Strategic Projects Unit (SPU) is responsible for the implementation and management of this tax incentive. To date 320 investor enquiries and 44 applications have been received. The total value of development is currently R645m. This amount excludes provisional registrations, which have an estimate project value of R500m.

Problem Statement

Several investors have expressed concerns regarding March 2009 as an end date for the UDZ scheme.  Investors consider a number of factors before making an investment decision and they are usually not hasty in making such a decision. In addition, it has taken investors time to recognize the UDZ incentive as an attractive incentive that can benefit cash flow.  Now that many investors have reached the decision to invest, they are confronted with a challenge of limited timeframe. Investors considering undertaking large projects with long lead times, need to make decisions as to whether to proceed with the projects or not. Yet, if the UDZ timeframes remain as they are, some investors may withdraw in the fear that their development will not be completed on time, and they will forfeit the benefits of the UDZ scheme.   There is also a concern that investors will limit the scale of their investment to complete projects within the required timeframe, which will impact negatively on inner city regeneration. eThekwini Municipality is seeking to gain an extension of time on the end date of the UDZ scheme reviewed in order to not lose out on significant potential investment.

Purpose of the Workshop

The eThekwini Municipality has initiated a workshop in order to engage other municipalities with promulgated UDZs as well as National Treasury regarding an extension of time for the UDZ initiative.   This workshop is convened to allow municipalities to share their experiences on institutional arrangements, budgetary issues and marketing interventions, and discuss how to optimize the impact of the UDZ tax incentive. It is also intended to allow municipalities to discuss the future of the UDZ tax incentive with officials from National Treasury and the SA Revenue Service, and with members of the SA Property Owners Association, representing private investors.

Workshop Participants

Participating in the workshop will be 16 municipalities with promulgated UDZ, South African Properties Association (SAPOA) and senior staff from National Treasury, South African Revenue Services (SARS) and South African Cities Network (SACN). Locally, participants will include municipal representatives, representatives of local SAPOA and the Durban Chamber of Commerce and Industry.

Proposed Programme

The workshop will be held at the Inkosi Albert Luthuli International Convention Centre.  The workshop is planned to run from 8h00 to 17h00. Thereafter there will be a media briefing session, which will start at 17h30 and end at 19h00