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How incentives can make a strategic
difference to your business
July 2015
Agenda
• International incentive performance
• South African incentive performance
• IPAP and Incentives
• The business cycle
• Status of incentives
• Conclusion
2011 - 30 %
2012 - 15 %
$15 billion
Value of incentives awarded
globally
10 000
Deals done in 2013
Average incentive deal as % of capex
366 007
jobs created globally in 2012
Tax Incentive
Most common type
of incentive
awarded but
moving to cash
grants
BEPS and OECD
impact?
Source -
International incentive performance
South African incentive performance
EIP – 43 570
12I - 3 326
Tax forgone estimates (2012/13)
R343 million – R&D S11D
R3 million – 12G/12I
R15 billion – MIDP & APDP
R119 billion – Total
Jobs created/maintained
Cash incentive expenditure – R2,7 billion.
2011 2012 2013 2014 2015
Cash incentive expenditure – R3,2 billion Cash incentive expenditure – R4,4 billion Cash incentive expenditure – R5,5 billion Cash incentive expenditure – R5,6 billion
MCEP - 33 551
14,7%
2012/13 tax
expenditure as % of
total gross revenue
R6,7
billion
2016 cash
incentive
budget
Medium Term Expenditure Estimate
• CIP– R182 mil
• SEZ– R500 mil.
• MCEP – R924 mil.
• APDP – R703 mil.
• CIP– R190 mil
• SEZ– R750 mil.
• MCEP – R1,4 bil.
• APDP - R920 mil.
• CIP – R203 mil
• SEZ – R1 bil.
• MCEP – R1.8 bil,
• APDP – R 917 mil.
Build competitive
manufacturing with strong
growth and employment
multipliers.
Trade policy – Standards,
strategic tariff regime,
clampdown on
illegal/substandard imports.
Mineral and resources
beneficiation. Grown
upstream/downstream value
chain.
Deepen support
programmes in automotive,
metals, agro-processing,
clothing, textiles, leather and
footwear.
Create jobs.
Leverage state infrastructure
spend through localisation
programme and
designations.
Support green industries,
renewables, energy
efficiency, advanced
manufacturing and
materials.
Expand and deepen the
industrial financing and
incentive framework.
Competition policy –
Clampdown on collusion
and price – fixing.
IPAP and Incentives – Iteration 7
Incentives – acronym city
NIPP
MCEP
SPII BBSDP
CIP
AIS11D
12I
EMIA
IDZ
SEZ
THRIP
PII
Innovation
Fund
APDP Jobs fund
ISP
CIS
CPFP
ADEP
BBSDP
BPS
TSP
Film
incentive
SSAS
EMIAP-AIS
CTCIP STP
PI
The business cycle
7
R&D
• S11D
• SPII
• APDP
• Thrip
• PII
• Innovation
Fund
• Green Fund
Enterprise
Development
• APDP/AIS
• NIPP
• S12I
• MCEP
• CIP/MIG
• SEZ
• ISP
• Black Industrialist
Competitiveness
•NIPP
•BBSDP
•APDP
•MCEP
•S12L - energy
•Carbon Credits
and S12K
•DSM/IDM
•Green Fund
•Jobs Fund
Export
• EMIA
• IDZ
• SEZ
• CPFSP
• NIPP
• Drawbacks
Status of incentive
12I 12LMCEP S11D
• Extended to 2017
• Budget of R20 billion
not increased
• Only between 15% of
budget remaining until
2017
• Very well managed
incentive with good
turnaround times
• Energy measurement
• Reduction of maximum
project size to R50
million.
• Oversubscribed?
• 18 month turnaround
• Customer service layer
inserted
• Rules changes – BEE
level 4
• 150% tax deduction
• Slow turnaround times.
• Uncertainty with regard
to interpretation of
legislation.
• Pre-Approval
• Minister approval
• Global best practice
• BEPS impact
• Benefit increased from
45 to 95 cents
• Capital incentive?
• Good administrative
system
• benefit too low?
• only available for one
year of energy savings
Status of incentive
SEZ
Black
Industrialist
ISP NIPP
• Not effective yet
• IDZ’s to be converted
• 15% corporate tax rate
for 10 years
• New SEZ’s to be set up
and determined
• Regulations to be
finalised
• Single site SEZ’s need to
be considered
• 50% grant
• R10m per annum
• 3 years
• Low approval rate – net
16% to date
• Structure could be
complicated – tax issues
• New BEE rules could
assist
• Countertrade obligation
• For contracts with
government
• Greater than
USD10million imported
content
• Excl Eskom/Transnet
• Police consistently?
• Link with local
procurement
• Target of 100
• 75% black ownership
• In development
• R1 billion budget
• Treatment of current
incentive applicants?
Conclusion
 What future costs to be incurred in major categories
 Need to understand what incentive available – holistic view needed
 Most incentives need monitoring to ensure compliance – business needs to comply
 BBBEE level key requirement for most grant programmes
 Applicants need to understand rules and government priorities
 Some programmes need to improve administration to be more effective
 Attempt to link industrial financing and incentives – Possible?
 Ultimate is to build incentive questions into decision making process – then will make a difference
CONTACTS
Duane Newman
Director
082 783 5057
dnewman@cova-advisory.co.za
Mari Wichmann
Manager
083 542 7762
mwichmann@cova-advisory.co.za
www.cova-advisory.co.za
Tumelo Chipfupa
Director
082 789 8915
Tchipfupa@cova-advisory.co.za

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Hall 2C Tuesday 14h00 - Duane Newman

  • 1. How incentives can make a strategic difference to your business July 2015
  • 2. Agenda • International incentive performance • South African incentive performance • IPAP and Incentives • The business cycle • Status of incentives • Conclusion
  • 3. 2011 - 30 % 2012 - 15 % $15 billion Value of incentives awarded globally 10 000 Deals done in 2013 Average incentive deal as % of capex 366 007 jobs created globally in 2012 Tax Incentive Most common type of incentive awarded but moving to cash grants BEPS and OECD impact? Source - International incentive performance
  • 4. South African incentive performance EIP – 43 570 12I - 3 326 Tax forgone estimates (2012/13) R343 million – R&D S11D R3 million – 12G/12I R15 billion – MIDP & APDP R119 billion – Total Jobs created/maintained Cash incentive expenditure – R2,7 billion. 2011 2012 2013 2014 2015 Cash incentive expenditure – R3,2 billion Cash incentive expenditure – R4,4 billion Cash incentive expenditure – R5,5 billion Cash incentive expenditure – R5,6 billion MCEP - 33 551 14,7% 2012/13 tax expenditure as % of total gross revenue R6,7 billion 2016 cash incentive budget Medium Term Expenditure Estimate • CIP– R182 mil • SEZ– R500 mil. • MCEP – R924 mil. • APDP – R703 mil. • CIP– R190 mil • SEZ– R750 mil. • MCEP – R1,4 bil. • APDP - R920 mil. • CIP – R203 mil • SEZ – R1 bil. • MCEP – R1.8 bil, • APDP – R 917 mil.
  • 5. Build competitive manufacturing with strong growth and employment multipliers. Trade policy – Standards, strategic tariff regime, clampdown on illegal/substandard imports. Mineral and resources beneficiation. Grown upstream/downstream value chain. Deepen support programmes in automotive, metals, agro-processing, clothing, textiles, leather and footwear. Create jobs. Leverage state infrastructure spend through localisation programme and designations. Support green industries, renewables, energy efficiency, advanced manufacturing and materials. Expand and deepen the industrial financing and incentive framework. Competition policy – Clampdown on collusion and price – fixing. IPAP and Incentives – Iteration 7
  • 6. Incentives – acronym city NIPP MCEP SPII BBSDP CIP AIS11D 12I EMIA IDZ SEZ THRIP PII Innovation Fund APDP Jobs fund ISP CIS CPFP ADEP BBSDP BPS TSP Film incentive SSAS EMIAP-AIS CTCIP STP PI
  • 7. The business cycle 7 R&D • S11D • SPII • APDP • Thrip • PII • Innovation Fund • Green Fund Enterprise Development • APDP/AIS • NIPP • S12I • MCEP • CIP/MIG • SEZ • ISP • Black Industrialist Competitiveness •NIPP •BBSDP •APDP •MCEP •S12L - energy •Carbon Credits and S12K •DSM/IDM •Green Fund •Jobs Fund Export • EMIA • IDZ • SEZ • CPFSP • NIPP • Drawbacks
  • 8. Status of incentive 12I 12LMCEP S11D • Extended to 2017 • Budget of R20 billion not increased • Only between 15% of budget remaining until 2017 • Very well managed incentive with good turnaround times • Energy measurement • Reduction of maximum project size to R50 million. • Oversubscribed? • 18 month turnaround • Customer service layer inserted • Rules changes – BEE level 4 • 150% tax deduction • Slow turnaround times. • Uncertainty with regard to interpretation of legislation. • Pre-Approval • Minister approval • Global best practice • BEPS impact • Benefit increased from 45 to 95 cents • Capital incentive? • Good administrative system • benefit too low? • only available for one year of energy savings
  • 9. Status of incentive SEZ Black Industrialist ISP NIPP • Not effective yet • IDZ’s to be converted • 15% corporate tax rate for 10 years • New SEZ’s to be set up and determined • Regulations to be finalised • Single site SEZ’s need to be considered • 50% grant • R10m per annum • 3 years • Low approval rate – net 16% to date • Structure could be complicated – tax issues • New BEE rules could assist • Countertrade obligation • For contracts with government • Greater than USD10million imported content • Excl Eskom/Transnet • Police consistently? • Link with local procurement • Target of 100 • 75% black ownership • In development • R1 billion budget • Treatment of current incentive applicants?
  • 10. Conclusion  What future costs to be incurred in major categories  Need to understand what incentive available – holistic view needed  Most incentives need monitoring to ensure compliance – business needs to comply  BBBEE level key requirement for most grant programmes  Applicants need to understand rules and government priorities  Some programmes need to improve administration to be more effective  Attempt to link industrial financing and incentives – Possible?  Ultimate is to build incentive questions into decision making process – then will make a difference
  • 11. CONTACTS Duane Newman Director 082 783 5057 dnewman@cova-advisory.co.za Mari Wichmann Manager 083 542 7762 mwichmann@cova-advisory.co.za www.cova-advisory.co.za Tumelo Chipfupa Director 082 789 8915 Tchipfupa@cova-advisory.co.za