IN 86: Additional Investment and Training Allowances for Industrial Policy Projects

In 2009, the Industrial Policy Projects tax incentive was introduced in section 12I (the section 12I tax incentive) to support investment in manufacturing assets that would improve the productivity of the manufacturing sector. The section 12I tax incentive is available for new industrial policy projects as well as the expansion or upgrading of existing projects.

The section 12I tax incentive makes provision for an additional investment allowance for an industrial policy project as determined according to the type of investment.

The sunset date in respect of section 12I was 31 March 2020 which fell during the Covid-19 pandemic. As a result, many beneficiaries of the section 12I tax incentive experienced challenges such as:

(i) Compliance with the period of four years plus the additional one year allowed to bring qualifying assets into use in terms of subsections 12I(2) and 12I(19)(a)

(ii) Delay in further acquisition of qualifying assets

(iii) Knock-on effect on providing skills development (training – such as practical hands-on training, which cannot be properly substituted with online classes. Some training required foreign or distant expert support, most of whom could not travel. Local training providers also have stringent measures in place in terms of the lockdown regulations

(iv) Compliance with the energy efficiency requirement was also a challenge as lower production led to lower potential energy efficiency

(v) Compliance with the further requirement of more than 50 per cent of the manufacturing assets to be acquired and brought into use within 4 – 5 years in terms of 12I(7)(c)

Interpretation note 86 (issue 3) is intended to provide guidance on the interpretation and application of section 12I which provides for the deduction of additional investment and training allowances from the income of a company carrying on a qualifying “industrial project” in light of the above.

Find IN 86 (issue 3) here.

06/08/2021