Please see attached Cova's budget commentary on government incentives and environment taxes. Please contact us if you have any questions.

1. 21 February 2018
SA 2018/19
BUDGETgrowth incentivised

2. COVA ADVISORY | growth incentivised | SOUTH AFRICA 2018/9 BUDGET 2
THE GREEN ECONOMY
Carbon tax
It was announced that the Carbon Tax will be implemented on 1 January 2019. This
announcement has been anticipated following the recent publication of the revised
Carbon Tax Bill which was published for comment on 14 December 2017. The comments
on the revised Bill must be submitted by 9 March 2018. The Bill is expected to be enacted
before the end of 2018.
Following this announcement, we expect to see further developments this year which
include:
o Revised regulation for the carbon offset allowance, enabling firms to reduce their
carbon tax liability;
o Regulations for the performance and trade exposure allowance; and
o The provision of clarity on the alignment of the carbon tax and carbon budget after
2022.
Section 12L – energy efficiency incentive
No changes have been announced to Section 12L of the Income Tax Act. The allowance
for energy efficiency therefore remains at R0.95/kWh and the end date of the incentive
remains at 1 January 2020. Treasury is planning on reviewing the energy efficiency tax
incentive and energy conservation schemes, this could potentially lead to a change in the
allowance rate and an extension of the Section 12L incentive end date.
Clean Energy
The Clean Energy programme is expected to decrease at an average annual rate of 15.8%,
from R742.5 million in 2017/18 to R442.7 million in 2020/21. To realise 1.5 terawatt hours
of energy savings over the Medium Term Expenditure Framework (MTEF) period,
allocations to the energy efficiency and demand side management grant will increase at
an average annual rate of 5.6 per cent, from R203.2 million in 2017/18 to R239.6 million
in 2020/21. This will enable municipalities to undertake initiatives such as replacing street
and traffic signal lights with energy efficient technology, and to retrofit and replace
municipal infrastructure that is energy inefficient.
Environmental taxes
Below is a summary of the most significant changes to environmental taxes.
Taxes Explanation Percentage increase
Plastic Bag
Levy
Increased from 8 cents per bag to 12 cents
per bag, effective 1 April 2018.
50%

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Government will publish a discussion document outlining design options for the proposed
acid mine drainage levy to make polluters pay for the cost of environmental damages,
and to help fund the treatment of acid mine water.
Green Fund
Over the medium term, the Green Fund is expected to receive additional allocations from
the economic competitiveness and support package of R95 million in 2018/19, R111
million in 2019/20 and R117.1 million in 2020/21. Direct investment into projects,
including co-investments and additional support realised thus far, amount to R285 million,
with contributions from the private sector amounting to R91 million.
Drawing investment from the private sector is one of the key mandates of the fund. As
investments begin to show favourable returns, it is expected that private sector investors
will invest without any state involvement. As a result, direct investment is expected to
exceed R500 million over the medium term.
GOVERNMENT INCENTIVES
Given the difficult budget environment that required the Minister of Finance to reduce
spending and look for new areas to increase revenues, it was always going to be a
challenge to initiate, through the 2018 budget, new initiatives to support private sector
investment and competitiveness growth. It is thus welcome that the budget for existing
incentives administered through the Department of Trade and Industry have been
increased in line with the expected inflation of about six percent, thus implying that in real
terms fiscal support for investment will stay the same. The Minister was able to introduce
new initiatives such as the new Small Business Innovation Fund, the much-anticipated
designation of SEZ’s that will receive SEZ benefits and the scheme to support the
commercialization of black farmers.
Incentive review process
During the 2017/18 financial period both Treasury and DTI have initiated a review process
for the current section 12I tax allowance programme that was introduce in 2010 and was
supposed to have expired in 31 December 2017. The programme expiry date has been
extended to March 2020 to allow both the DTI and Treasury to conclude the evaluation.
The Department is expected to conclude the review before March 2020.
Incandescent
Globe Tax
Increased from R6.00 to R8.00 per globe,
effective 1 April 2018.
33%
Vehicles
Emissions Tax
Increased to R110 for every gram above 120g
CO2/km for passenger vehicles and R150 for
every gram above 175g CO2/km for double
cab vehicles, effective 1 April 2018.
20% - 22%

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The DTI is also reviewing the Automotive Production Development Programme as part of
the overall South African Automotive Master Plan. The assessment will cover the extent to
which the programme has achieved its intended objectives. The review should provide a
set of recommendation to improve the current programme. The are no clear timelines as
to when the review will be concluded.
Venture capital incentive
An administrative amendment has been made to the venture capital incentive. The
legislation will be tightened to reduce the scope for tax structuring. There has been a
substantial increase in the take up of the incentive and there are now more than 90
registered venture capital companies with total investments of R2.5 billion. Investment in
qualifying small businesses amounts to R615 million. New and small businesses are
benefiting from the funding, enabling them to hire staff and grow their business.
Agro-Processing Incentive
The Agro Process Support Scheme was launched in May 2017 and aims to stimulate
investment in the agro-processing sector. The incentive has a budget of R1.5 billion over
the medium term. The department expects to assist 300 small-scale commercial farmers
and agro-processors through the scheme over the medium term.
The comprehensive agricultural support programme is an incentive programme
administered by the Department of Agriculture, Forestry and Fisheries and aims to provide
support to subsistence, smallholder and black commercial producers within areas that are
strategically identified for the production of grains, livestock, horticulture and aquaculture.
The department expects to spend R5.6 billion on the programme over the MTEF period.
Black Industrialist (BI) Incentive
The black industrialist scheme continues to be a key driver for economic transformation
with more than R16.5 billion over the MTEF period being allocated to black industrialists
who operate within the metals and mining, chemicals, pharmaceuticals, agro-processing
and agriculture sectors.
Since the introduction of BI scheme in 2014, funding of R11.5 billion has been provided
to 185 black industrialists. As a priority sector, the mining sector aims to develop 30 black
industrialists over the MTEF period by providing preference to black owned businesses
through the Mineral Regulation Programme which has been allocated a budget of R1,3
billion. It is significant to note that an additional 165 black-owned and managed
companies will benefit from the Manufacturing Development Incentive Programme
during the MTEF period.
Section 12I – Additional tax allowance
The window period for the section 12I tax incentive was extended to 31 December 2019

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but with no additional allowance to top up the initial R20 billion budget. To date, the full
budget allocation for this incentive has been committed. Unfortunately, no additional
allocation has been made for the incentive in the latest budget speech.
Section 11D – Research and Development
incentive
Together with the Minister of Science and Technology, government has streamlined
the administration of the Section 11D R&D tax incentive. Over the past two years, the
Department of Science and Technology has reduced their application backlog which
developed due to inefficiencies in the system and has moved to an online system.
Government will also consider revising aspects of legislation that have created complexity.
The availability of adequate infrastructure is vital in the development of a robust and
competitive national system of innovation. Government has allocated R2.2 billion over the
medium-term expenditure framework period to various research, development and
support programmes to provide for research and development infrastructure across the
national system of innovation. These funds will be used specifically for the acquisition of
research equipment, development of pilot plants, technology demonstrators, feasibility,
performance and specialised facilities such as aerospace.
Special Economic Zone
The budget for the Special Economic Zones (“SEZs”) is expected to increase at an average
annual rate of 19.3%, from R905.4 million in 2017/18 to R1.5 billion in 2020/21. In total,
six SEZs have been approved by the Ministry of Finance for SEZ incentives such as section
12R and 12S. The six SEZ’s are Coega, Dube Trade Port, East London, Maluti-a-Phofung,
Richards Bay and Saldanha Bay. The notable exception is the O.R Tambo SEZ in Gauteng. Three
SEZs located at Atlantis (Western Cape), Nkomazi (Mpumalanga) and Mogwase (North
West), are expected to be designated over the medium term. The 3 SEZs will have a
specific focus on renewable energy and technology, agro-processing, logistics and
mineral beneficiation.
Customs
There has been an increase in the excise duty of 10%. Consumers of high value luxury
items such as perfumes, skin care preparations and air conditioners will be affected by the
increase in ad valorem excise duty which has increased by 2 points from between 5%-7%
and 7%-9%. Excise duties on tobacco and alcohol will also see an increase ranging
between 6% - 10%. Consumers of high end motor vehicles will also be significantly
impacted by an increase in excise duty which will increase from 25% to 30%.

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