Page 23 - SAIT Compendium 2016 Volume2

Tax holiday INCOME TAX ACT: REGULATIONS ANd NOTICES Tax holiday
6 Project deemed not to be substantially the same
A project to be carried on by a company is regarded as not substantially the same manufacturing concern as was carried on by any other person within the Republic, if—
(a) such company takes over the whole of such manufacturing concern from such other person with the purpose of
expanding such manufacturing concern to such an extent that it will be operated on such a scale which will make it internationally competitive; and—
(i) with regard to the scale and scope of such project—
(aa) the total investment by such company in machinery and plant of such project, exceeds the cost price—
(A) of the machinery and plant to be taken over from such other person by such company, by at least two times; and
(B) at which such machinery and plant to be taken over was originally aquired by such other person by at least three times; and
(bb) the realistically estimated annual turnover as substantiated by a clearly de ned marketing report of such project exceeds the total annual turnover of the manufacturing concern to be so taken by at least two times;
(ii) with regard to the extent of the utilisation of—
(aa) machinery and plant, not more than 40 per cent of the intended production, as substantiated by a clearly
de ned production plan of such project, will be derived from the machinery and plant of the manufacturing
concern that is to be taken over; and
(bb) human resources, the employees of the manufacturing concern that is to be taken over are retrained in that
project to apply the technology of the project as substantiated in a training plan for such project; and (iii) the approval and envisaged implementation of the project will not, as evaluated on the date it is considered by
the Board, lead to eroding of the existing national normal tax base; or
(b) machinery and plant (including such assets held under a nancial lease, but excluding machinery and plant referred
to in paragraph (a)) are taken over by such company from the manufacturing concern of such other person, and— (i) an investment at cost equivalent to two times the cost of the machinery and plant, or capitilised value of such assets held under nancial lease, taken over from the manufacturing concern of such other person is made by
such company in additional machinery and plant; and
(ii) the machinery and plant is not acquired or leased directly or indirectly from a connected person in relation to
such company.
7 Evaluation criteria
[Reg. 6 substituted by GN R1067 of 28 August 1998.]
(1) To determine the nancial viability of a project the board will compare the— (a) asset management ratios;
(b) debt management ratios;
(c) liquidity ratios; and
(d) pro tability ratios,
calculated from the pro forma nancial statements submitted with the application, with the ratios of successful projects in the same industrial sector, or, in the absence of such ratios, the ratios which are generally accepted by nancial institutions as fair ratios to operate such a project successfully.
(2) To determine the effect on national competitiveness of a project the board will have regard to—
(a) where a product to be produced by a project is to be used mainly as an intermediary product (a product which will be used as an input into a nal product), the effect which the cost of that intermediary product will have on the
competitiveness of that nal product on the national or international markets; and
(b) where the product to be produced by a project is a product which has already been successfully manufactured in
South Africa, the impact which that product will have on the local market share of existing businesses and their
employees.
(3) The utilisation of resources will be determined by the board by having regard to the manner and ef ciency in which
the project intends using raw materials (including components), human resources and funding and the effect the project may have on the environment.
(4) Utilisation of competitive technology will be determined by the board by having regard to the extent to which the intended technology to be employed may enhance the competitiveness of the project.
(5) The commitment to the upgrading and training of local skills will be determined by the board by having regard to the manner in which the management of the project intends providing and utilising facilities to improve the skills and abilities of their human resources as demonstrated in the training plan submitted as part of the application.
8 Evaluation, approval and monitoring
(1) Only applications from companies that have not yet commissioned machinery and plant at the time of receipt of the application will be considered for the tax holiday scheme.
(2) A company that applies for tax holiday status shall provide the board, on application, with a pro forma income statement and pro forma balance sheet prepared in terms of GMP, wherein all nancial information is projected for three years.
(3) A qualifying company must submit annually to the board—
(a) audited nancial statements;
(b) a certi cate, in accordance with Table 2, wherein the auditor certi es that the qualifying company is still carrying
on the approved project at the approved locality and is manufacturing the approved products; and
(c) written con rmation from the qualifying company’s auditor that the human resource remuneration to value added
ratio has been calculated in accordance with Table 1 as required in regulation 5(1b), (c) and (3).
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