GOVERNMENT incentives for manufacturers will be weakened in new regulations that lower the caps on grants offered and shorten the time frame to meet broad-based black economic empowerment requirements.
Consultancy Deloitte says the changes published on Wednesday by the Department of Trade and Industry “will significantly” reduce the incentives for large companies offered by the Manufacturing Competitiveness Enhancement Programme (MCEP).
It said on Wednesday that it appeared the revised guidelines would apply to applications already submitted but not yet approved.
The “most important changes” in the new guidelines related to broad-based black economic empowerment, maintenance of employment levels, and reducing the amounts of money available from the department for various components of the programme.
Deloitte said it was not clear how the department would implement the revised requirements, and warned they might have unintended consequences for some applicants.
The department calls the MCEP a “key action programme” of the Industrial Policy Action Plan (IPAP) that aims to encourage manufacturers to upgrade their facilities in a manner that sustains employment and maximises value-addition in the short to medium term.
The sixth iteration of the IPAP will be released next Monday. But the department did not respond on Wednesday to repeated requests for comments on Deloitte’s misgivings.
Deloitte said the need for applicants to have level four empowerment status to qualify remained from the previous guidelines.
However, whereas before an applicant that did not meet this requirement could submit a plan showing that it would achieve it within four years, this now has to be achieved within two years; and from June 1 next year, no plans will be accepted, and an applicant will have to have level four empowerment status to qualify — an apparent contradiction.
“It appears the revisions may be applied retrospectively, based on the wording used in the MCEP guidelines itself. We would, however, hope the department would only apply the new guidelines to applications submitted on or after April 1 2014,” Deloitte’s lead director for tax, research and development, and government grants, Newton Cockcroft, said on Wednesday.
He said the most important implication was possible reduced benefits to applicants. Applicants may also have to resubmit parts of their applications.
Deloitte said that given the changes may apply retrospectively, it was advisable to review and amend plans already submitted.
It said the timing of second MCEP applications also needed to be “considered carefully”, given the June 1 2015 cut-off date.
Deloitte also warned on other changes. As in the previous guidelines, employment levels had to be maintained throughout the incentive period.
But, whereas previously there was some leeway — the department needed to be informed of possible future job losses and could approve an application at its discretion — Deloitte said this discretion had been removed. Any reduction in employment levels during the incentive period would disqualify an applicant from the MCEP.
The new guidelines also lower the caps on incentives for capital investments, green technology and improved resource efficiency, and enterprise-level competitiveness improvements.
Mr Cockcroft said the revision of the guidelines might also affect the department itself, in that applications that were in process may have to be “reconsidered”.
“Certain parts of the application form will require revision as well. Audit guidelines relating to the programme will also require to be changed,” he said.
Business in South Africa has already said it is drowning in red tape. Along with the proposed registration of small businesses, the market has regularly complained about increasingly inflexible labour and empowerment legislation — including preferential procurement — as well as the damage wrought by administered prices, and problems with power supply.
The further bureaucratic strictures on business could be another nail in the coffin of South African industry.
Other changes in the revised guidelines range from a limit on how much can be spent on new buildings, to providing clarity on incentives available to the defence industry.
Deloitte said it was also “important to note” that there were now, for the first time, separate guidelines that dealt with the cluster competitive improvement component of the programme. source: http://www.bdlive.co.za/business/2014/04/03/weakened-incentives-a-blow-to-manufacturers
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