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Income Tax Act, 1962 (Act 58 of 1962)

Regulations made under Section 12G(7) of the Income Tax Act, 1962 (Act No. 58 of 1962)

3. Criteria for Qualifying Strategic Industrial Project with or without Preferred Status

 

 

Points system

1) The Minister of Trade and Industry must, in terms of section 12G(5), approve a strategic industrial project as a qualifying strategic industrial project-
a) where the strategic industrial project achieves at least 4 out of the 10 potential points in terms of the criteria contemplated in section 12G(5);
b) having preferred status, where the strategic industrial project achieves at least 6 out of the 10 potential points in terms of the criteria contemplated in section 12G(5).

 

Factors and points allocation

Upgrading industry

 

1) A strategic industrial project must be regarded as upgrading an industry within the Republic and must be awarded the number of points indicated, where-
a) that project utilises a process or offers a product that is-
i) previously unused in, or new to, the Republic when the company with the project submits its application for approval as a qualifying strategic industrial project and that process or product has material significance for the South African market; or
ii) already used or available within South Africa to the extent that the process or product first arose from another industrial project that previously received approval in terms of section 12G(5) and that process or product has material significance for the South African market:

Provided that such process or product-

(aa) demonstrates material significance in terms of delivery time, reduced cost or increased quality of function or of longevity; and
bb) could not be introduced to the South African market without a substantial capital investment;

 

(1 point)

b) that project acts as a key component in an industry cluster existing within South Africa, so as to improve the cluster’s competitiveness as a whole, and in this regard-
i) the addition of the project at a point within an industry cluster will substantially reduce cost, add quality in terms of function or of longevity or improve the efficiency of the industry cluster; and
ii) a project will be deemed to be a key component in an industry cluster, if the applicant demonstrates-
(aa) that the project fills an identified gap within a cluster diagram of the Department of Trade and Industry, which diagram is acceptable to the adjudication committee; or
bb) that the project fills an identifiable gap in an industry cluster;

 

(1 point)

c) that project contains a value-added process, which adds at least 35 per cent value under the formula contemplated in regulation 4(b), for each year of the specified period.

 

(1 point)

 

 

Business linkages

3) A strategic industrial project must be regarded as providing general business linkages and must be awarded the number of points indicated, where-
a) the project will acquire-
i) at least 20 per cent; or
ii) at least 10 per cent,

of its raw materials, intermediate products and services, based on the annual cost to the industrial project (including direct and indirect operating costs), from small, medium and micro enterprises (excluding any small, medium or micro enterprise which is a connected person, as defined in section 1 of the Income Tax Act, 1962, in relation to the company carrying on that strategic industrial project), which must be measured in each year of the specified period;

 

(i - 2 points) or
(ii - 1 point)

b) an amount equal to at least 5 per cent of the cost of qualifying industrial assets for the project is expended over the six year period after the date of approval in terms of section 12G(5), in respect of the acquisition, erection, construction or improvement of physical infrastructure in the Republic, including public roads, sewerage, underground telephone lines and other physical infrastructure which is freely available for general public use.

 

(1 point)

 

 

Direct and indirect employment creation

 

4) A strategic industrial project must be regarded as creating direct or indirect employment within the Republic and must be awarded the number of points indicated where, before the end of the specified period, the project will create at least-
a) 6 full-time jobs
b) 5 full-time jobs
c) 4 full-time jobs or
d) 3 full-time jobs

for each R1 million in cost of industrial assets directly incurred for the project.

 

(a) -4 points)

(b) -3 points)

(c) -2 points) or

(d) -1 point)

 

 

For the purpose of-

a) regulation 3.2(b), an "industry cluster"-
i) involves a concentrated subset of industries interconnected by a flow of purchases and sales that are stronger than the rest of the economy; and
ii) entails linkages throughout the value chain, from suppliers to end producers as well as support and specialised infrastructure;
b) regulation 3.2(c), the value-added shall be determined in accordance with the formula-

 

Gross Project Receipts – Material Inputs

Gross Project Receipts

where-

i) "gross project receipts" include all gross income other than income from investment and finance (such as interest, dividends, sales of financial instruments, and currency transactions); and
ii) "material inputs" include the direct cost of all raw materials, intermediate products, energy and water used to produce gross project receipts;
c) regulation 3.3(a), a business will not qualify as a small, medium or micro enterprise where-
i) more than 200 full-time employees are formally employed by that business; or
ii) the annual turnover of that business exceeds R50 million; and
d) regulation 3.4, jobs created from indirect employment will be determined as jobs added due to the increased sale of goods and services directly acquired by the project.