1. any amount paid to—

1. a connected person in relation to that company, to the extent the amount exceeds the costs incurred by that connected person (or by any other connected person in relation to the company), in respect of that asset; or
2. any person, to the extent the amount exceeds the fair market value of that asset;

1. any borrowing or finance costs, including interest as contemplated in section 24J or raising fees; and
2. any amount of the costs to the extent that those costs represent amounts directly or indirectly received in the form of any subsidy, rebate, refund, or other assistance granted by the national sphere of government pursuant to any investment incentive;

1. has not been used before by any person;
2. will be brought into use for the first time by that company within three years from the date of approval in terms of subsection (5);
3. will be used by that company in the Republic for purposes of carrying on an industrial project of that company; and
4. will qualify for a deduction in terms of sections 11(e) or 12C(a); or

1. have not been used before by any person;
2. will be brought into use by that company within three years from the date of approval in terms of subsection (5);
3. will be wholly or mainly used for the purposes of carrying on therein any process requiring plant and machinery contemplated in paragraph (a); and
4. will qualify for a deduction in terms of section 13(1)(b), (dA) or (f) other than where the company would qualify for such deduction as a lessor;

1. any manufacturing of products, goods, articles, or other things within the Republic that is classified as ‘Major Division 3: Manufacturing’ in the most recent Standard Industrial Classification as issued by Statistics South Africa; and
2. any computer and computer related activities; and
3. any research and development activities.

1. 100 per cent of the cost of any industrial asset used in a qualifying strategic industrial project determined to have preferred status; and
2. 50 per cent of the cost of any industrial asset used in any other qualifying strategic industrial project,

in the year of assessment during which that asset is first brought into use by the company as owner thereof for such project carried on by that company.

1. a declaration of good standing stating that all their tax affairs are in order and that they have complied with all the relevant provisions of the laws administered by the Commissioner; and
2. a certificate obtained from the Commissioner confirming that the company and all connected persons are registered for tax purposes, that all returns required to be rendered by that company and connected persons in terms of this Act, or any other Act administered by the Commissioner, have been timely rendered and that any tax, duties or levies due to the Commissioner have been paid, or that arrangements acceptable to the Commissioner have been made for the submission of any outstanding returns or the payment of any outstanding tax, duties or levies: Provided that where the company submits a request to the Commissioner for a certificate and the Commissioner fails to respond within 60 days, the company shall, in the absence of any proof to the contrary, be deemed to have complied with the provisions of this subparagraph;

1. the industrial project will not contravene government policy in terms of morals, safety, and health; and
2. the application for approval of the project by the company is received by the Minister of Trade and Industry after 31 July 2001, but not later than 31 July 2005, in such form and containing such information as the Minister of Trade and Industry may prescribe.

(8) Within six months after the close of each year of assessment starting with the year in which approval is granted in terms of subsection (5), a company with a qualifying strategic industrial project must annually report to the Minister of Trade and Industry with respect to the progress of the project in terms of the requirements of subsections (4) and (5) in such form and in such manner as the Minister may prescribe.

1. in respect of any company carrying on a qualifying strategic industrial project, any material fact changes during any year of assessment or the company during that year fails to comply with any requirement contemplated in subsection (4) or (5), which would have had the effect that approval in terms of subsection (5) would not have been granted had such change in fact or such failure been known to the Minister at the time of granting approval; or
2. any company carrying on a qualifying strategic industrial project during any year of assessments fails to submit a report to the Minister of Trade and Industry, as required in terms of subsection (8); or
3. the approval granted in terms of this section to a company carrying on a qualifying strategic industrial project, was based on any fraudulent information, material misrepresentation or material omission,

(i) disregard that change in material facts; or

1. promptly notify the Minister of Trade and Industry whenever the Commissioner discovers information upon assessment that may cause a full or part withdrawal of deductions in terms of subsection (8);
2. disallow all deductions otherwise provided under this section starting with the date of approval in terms of subsection (5) where the company has provided any fraudulent information, material misrepresentation or material omission with respect to any tax, duty or levy under the jurisdiction of the Commissioner and notify the Minister of Trade and Industry accordingly; and
3. inform the Minister of Trade and Industry where any company has requested the Commissioner to issue a certificate contemplated in subsection (4)(g)(bb) but where that certificate was denied.

(11) For purposes of subsections (9) and (10), the Commissioner may, notwithstanding the provisions of section 79, 81(5) and 83(18), raise an additional assessment for any year of assessment where the Minister of Trade and Industry has directed that an additional industrial investment allowance which has been allowed in that year must be disallowed in consequence of the withdrawal of the approval in respect of any project in terms of subsection (9).

1. interest at the prescribed rate on the difference between the tax as calculated in respect of its taxable income returned by it and the tax properly chargeable in respect of its taxable income as determined after disallowing the additional industrial investment allowance provided by this section; and
2. an amount of additional tax not exceeding twice the difference between the tax as calculated in respect of its taxable income returned by it and the tax properly chargeable in respect of its taxable income as determined after disallowing the additional industrial investment allowance provided by this section.

1. three members appointed by the Minister of Trade and Industry; and
2. three members appointed by the Minister of Finance:

Provided that the Minister of Trade and Industry or the Minister of Finance, as the case may be, may appoint alternate members if any member appointed in terms of paragraph (a) of (b) is not available to perform any function as member of the committee.

1. to determine whether the objectives of this section are being achieved; and
2. to advise the Minister of Finance and the Minister of Trade and Industry on any future proposed amendment or adjustment thereof;

1. require any company applying for approval of any project as a qualifying strategic industrial project in terms of this section, to furnish such information or documents as are necessary for the committee and Minister of Trade and Industry to perform their functions in terms of this section;
2. for a specific purpose and on such conditions and for such period as it may determine co-opt any person to assist in performing any function assigned to the committee in terms of this section; and
3. appoint its own chairperson and determine the procedures for its meetings provided that all procedures must be properly recorded and minuted.

1. the potential national revenue foregone by virtue of the deductions provided to the project under this section;
2. the description of the direct benefits of the project in terms of economic growth or employment, setting out the details of the factors contemplated in subsections (4) and (5) on which approval for the strategic industrial project was granted;
3. any decisions to withdraw in terms of subsection (9); and

(16) The Commissioner must submit an annual report to the Auditor-General containing a list—

1. of all certificates issued under subsection (4)(g); and
2. of all failures to respond within a reasonable period as provided in subsection (4)(g).

(17) Notwithstanding the provisions of section 4, the Commissioner must disclose to the Minister of Trade and Industry and the adjudication committee such information relating to the affairs of the company carrying on a qualifying strategic industrial project as is necessary to enable the Minister of Trade and Industry to perform its functions in terms of this section.

(18)(a) Every employee of the Department of Trade and Industry and members of the adjudication committee must preserve and aid in preserving secrecy with regard to all matters that may come to their knowledge in the performance of their functions in terms of this section, and may not communicate any such matter to any person whatsoever other than to the company concerned or its legal representative nor suffer or permit any such person to have access to any records in the possession or custody of that Department.

(b) Any employee of the Department of Trade and Industry, who contravenes a provision of paragraph (a), shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding two years.

XX. Section 8 of the Income Tax Act, 1962, is hereby amended by the insertion after paragraph (a) of subsection (4) of the following paragraph:

"(aA) In addition to the inclusion provided under paragraph (a), there shall be included in the taxpayer’s income all amounts allowed to be deducted in respect of an industrial asset under section 12G, whether in the current year or any previous year of assessment which have been recovered or recouped during the current year of assessment (disregarding any recovery or recoupment contemplated in paragraph (a)), to the extent the taxpayer disposes of the industrial asset before completion of that asset’s useful life in terms of section 11(e), 12C or 13, as applicable.

XX. Section 13 of the Income Tax Act, 1962, is hereby amended by the insertion after paragraph (d) of subsection (1) of the following paragraph:

XX. Section 3 of the Income Tax Act, 1962, is hereby amended by the substitution for subsection (4) of the following subsection:

"(4) Any decision of the Commissioner under the definitions of ‘benefit fund’, ‘pension fund’, ‘provident fund’, ‘retirement annuity fund’ and ‘spouse’ in section 1, section 6, section 8(4)(b), (c), (d) and (e), section 9D, section 9F, section 10(1)(cH), (cK), (e), (iA), (j) and (nB), section 11(e), (f), (g), (gA), (j), (l), (t), (u) and (w), section 12C, section 12E, section 12G, section 13, section 14, section 15, section 22(1), (3) and (5), section 24(2), section 24A(6), section 24C, section 24D, section 24I, section 25D, section 27, section 31, section 35(2), section 38(4), section 57, paragraphs 6, 7, 9, 13, 13A, 14, 19 and 20 of the First Schedule, paragraph (b) of the definition of ‘formula A’ in paragraph 1 and paragraph 4 of the Second Schedule, paragraphs 18, 19(1), 20, 21, 22, 24 and 27 of the Fourth Schedule, paragraphs 2, 3, 6, 9 and 11 of the Seventh Schedule and paragraphs 29(7), 31(2), 65(1)(d) and 66(1)(c) of the Eighth Schedule, shall be subject to objection and appeal.".

1. by the addition of the word "or" at the end of paragraph (h) of subsection (1); and
2. by the insertion after paragraph (h) of subsection (1) of the following paragraph:

REGULATIONS UNDER SECTION 12G(7) OF THE INCOME TAX ACT (NO. 58 OF 1962)

REGULATIONS

1. In accordance with section 12G(7) of the Income Tax Act, the Minister of

Finance has issued the following regulations in this Schedule in consultation with the Minister of Trade and Industry.

DEFINITIONS

2. All definitions and expressions within these regulations have the same meaning as those contained within the Income Tax Act. In addition, all references to subsections and paragraphs are to those contained within section 12G of the Income Tax Act.

SCHEDULE

Definition of computer and computer related activities as well as research and development activities

3. Paragraphs (b) and (c) of the definition of "industrial project" in subsection (1) includes any computer and computer related activities as well as any research and development activities. Pursuant to the regulatory authority under subsection (7)(a), these activities are defined in terms of the most recent Standard Industrial Classification as issued by Statistics South Africa as follows:

Computer and Computer Related Activities

SIC-code Industry description

8610. Hardware consultancy

8620. Software consultancy and supply

8630. Data processing (other than standard

8640. Data base activities

8650. Maintenance and repair of office, accounting and computer machinery

Research and Development

SIC-code Industry Description

Treatment as a Strategic Industrial Project

4. Subsection (4) provides that an industrial project will be treated as strategic if the conditions of paragraphs (a) through (i) are satisfied. Pursuant to the regulatory authority under subsection (7)(b) through (g), these conditions are further prescribed as follows:

1. Increase in Production After Displacement. Subsection (4)(b) requires that an industrial project increase production of a South African industrial sector, after taking into account any displacement within that business sector. An industrial project will satisfy this requirement only if the expected loss in production for other South African businesses within the same business sector does not exceed 40 per cent of the production expected from the industrial project. This 40 per cent limit is measured by aggregating the production levels to be compared over the six year period after the date of approval in terms of subsection (5). For purposes of this determination, a business sector is the lowest available sic-code major grouping, grouping, or subgrouping associated with the project as issued by Statistics South Africa. Also purposes of this determination, production will be measured in units (or in gross sales if units are unavailable or do not provide an appropriately similar comparison).
2. Expansions. Subsection (4)(c) requires an expansion of an existing industrial project to significantly increase production as compared to that of the existing industrial project. An industrial project will satisfy this requirement only if the production expected from the expansion will equal at least 35 per cent of the production generated from the existing industrial project. This 35 per cent threshold is measured by aggregating the production levels to be compared over the six year period after the date of approval in terms of subsection (5). For purposes of this determination, production will be measured in units (or in gross sales if units are unavailable or do not provide an appropriately similar comparison).
3. Prohibition Against Concurrent Section 37E and Section 37H Benefits. Subsection (4)(d) contains a prohibition against concurrent benefits under section 37E and section 37H. An industrial project will be treated as receiving concurrent benefits under section 37E only if that project will receive deductions under that section after the date of approval in terms of subsection (5); mere use of previously generated deductions will not be treated as a concurrent benefit. An industrial project will be treated as receiving concurrent benefits under section 37H only if the company with the industrial project will enjoy tax holiday status after the date of approval in terms of subsection (5); mere enjoyment of tax holiday status before this period will not be treated as a concurrent benefit.
4. Prohibition Against Industrial Participation Projects and Investment Incentives. Subsection (4)(e) contains a prohibition against industrial participation projects and against concurrent investment incentives provided by any national sphere of government. Under the prohibition against industrial participation projects, no industrial project will be treated as strategic if that project will constitute an industrial participation project under the National Industry Participation Program at the time approval would otherwise be granted in terms of subsection (5). Under the prohibition against national investment incentives, no industrial project will be treated as strategic if that project will receive concurrent benefits under the Motor Industry Development Programme, the Productivity Asset Allowance, the Regional Industrial Development Programme, the Small Medium Enterprise Development Programme, the Small Medium Manufacturing Development Programme, or the Small Regional Industrial Development Programme. Concurrent investment incentive benefits will be found to exist if these benefits arise during the same year of assessment as the year in which the project will generate additional deductions under subsection (2).
5. Long-term Commercial Viability. Subsection (4)(f) requires an industrial project to demonstrate long-term commercial viability after the deductions provided by subsection (2) are exhausted. An industrial project will demonstrate this long-term commercial viability by providing data that the project’s estimated pre-tax internal rate of return will equal or exceed the the domestic and international average pre-tax internal rate of return for businesses within the lowest available sic-code major grouping, grouping, or subgrouping associated with the project, as issued by Statistics South Africa. For purposes of this determination, a pre-tax internal rate of return is measured as a return on total assets (net operating income before interest/total assets less interest bearing liabilities). This viability determination will be measured by aggregating the internal rates of return to be compared over the ten year period after the date of approval in terms of subsection (5).
6. Contravention of Government Policy. Subsection (4)(h) contains a prohibition against any project that contravenes government policy in terms of morals, safety, and health. This prohibition extends beyond projects that produce illegal products and services.

Treatment as a Qualifying Strategic Industrial Project With or Without Preferred Status

5. Subsection (5) provides that the Minister of Trade and Industry must approve a strategic industrial project as a qualifying strategic industrial project if the Minister is satisfied that the project will significantly increase South African growth or employment by utilising the criteria provided in subsection (5)(a) through (c). The Minister will also utilise this criteria to determine whether a qualifying strategic industrial project is entitled to preferred status. Pursuant to the regulatory authority under subsection (7)(h) through (j), these criteria and their relative weights are prescribed below.

Relative Weights

6. In order for a strategic industrial project to be treated as a qualifying strategic

industrial project, the strategic industrial project must achieve 4 out of the 10 potential points in terms of the criteria contemplated in subsection (4)(a) through (c). In order for a qualifying strategic preferred project to be treated as having preferred status, the strategic industrial project must achieve 6 out of the 10 potential points.

Criteria

7. As previously stated, subsection (5) provides the criteria that the Minister of

Trade and Industry must utilise in order to determine whether a strategic industrial project is a qualifying strategic industrial project (i.e., eligible for the 50 per cent additional deduction) and whether that project is entitled to preferred status (i.e., eligible for the 100 per cent additional deduction). These criteria and their relative weights are as follows:

(a) Industry Upgrade Criteria

2. Key Component to Related Existing Projects (1 Point). A strategic industrial project will receive 1 point if that project acts as a key component to related industrial projects already existing within South Africa (hereinafter referred to as an "industry cluster") so as to improve their competitiveness as a whole. An industry cluster involves a concentrated subset of industries interconnected by a flow of purchases and sales that are stronger than the rest of economy. This interconnection entails linkages throughout the entire value chain, from suppliers to end producers as well as support and specialised infrastructure. A strategic industrial project acts as a key component that improves competitiveness if the addition of the project will substantially reduce cost, add quality or improve efficiency of an industry cluster.
3. Value-Added Processes (1 Point). A strategic industrial project will receive 1 point if that project contains value-added processes. A project will be treated as containing a value added process if the process used by the project adds at least 35 per cent value under the following formula:

2. General Business Linkage Criteria

1. Small Business Purchase Criteria (1 to 3 Points). A strategic industrial project will receive a maximum of 3 points if that project acquires a significant percentage of goods and services from other trades to the extent those trades qualify as small, medium and micro enterprises. A project will receive 3 points if the project acquires at least 30 per cent of its raw materials, intermediate products, and services from small, medium and micro enterprises; 2 points if the project acquires at least 20 per cent; and 1 point project acquires at least 10 per cent. For purposes of this determination, a small, medium, and micro enterprise is a business containing no more than 200 employees. This small business local purchase criteria will be measured over the six year period after the date of approval in terms of subsection (5).