Catalyst Global

Support Programme for Industrial Innovation (“SPII”) – The SPII grant has been funded with a further R75m for the 2023/2024 financial year, with inflation increases in annual funding forecast for the next 3 years.

Technology Innovation Agency (“TIA”) – TIA and its suite of funding instruments have been allocated R460m in funding for the coming year, increasing to R502m in 2025/2026.

ENERGY

Section 12B Renewable Energy Tax Incentive – From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate (27%), this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation. There will be no thresholds on the size of the projects that qualify, and the incentives will be available for two years to stimulate investment in the short term.

Rooftop Solar incentive – Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000. This can be used to reduce their tax liability in the 2023/24 tax year. This incentive will only be available for one year.

Bounce Back Loan Guarantee Scheme – In 2023, the National Treasury will amend the bounce-back scheme to address energy-related constraints hampering businesses’ recovery from the COVID-19 pandemic. As part of the amendments:

• Government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
• Commercial banks will be permitted to borrow directly from the scheme to facilitate the leasing of solar energy equipment to small businesses.
• Small businesses installing solar will be able to borrow finance for working capital.

• Wheeling – Proposal for the implementation of a wheeling framework and grid capacity rules to provide certainty to private producers investing in energy projects.
• Energy Security Bill – Clearing regulatory obstacles by establishing a one-stop shop to bring electricity onto the grid more rapidly. This will be supported by the Energy Security Bill, which removes regulatory impediments for independent power producers. Further to this, the licensing requirement for embedded generation projects has been lifted.
• The Risk Mitigation Power Purchase Procurement Programme – A request for proposals for the seventh bid window will be issued in the first half of 2023/24, subject to grid availability.

CARBON TAX

Carbon Tax Rates

• Effective 1 January 2023, the carbon tax rate increased from R144 to R159 per tonne of carbon dioxide equivalent.
• In line with the carbon tax rate increase, the carbon fuel levy for 2023/24 will increase by 1c to 10c/l for petrol and 11c/l for diesel from 5 April 2023.
• The carbon tax cost recovery quantum for the liquid fuels refinery sector increased from 0.63c/l to 0.66c/l, effective from 1 January 2023.

Carbon Offsets

• The utilization period of carbon offsets in respect of approved projects in existence prior to 1 June 2019 for activities that became subject to carbon tax will be extended in the Carbon Offset Regulations from 28 July 2023 to 28 July 2026. These amendments will take effect from 1 January 2023.

Emission Factors

• The Carbon Tax Act will be updated to include the Tier 2 (country-specific) emission factors developed by the Department of Forestry, Fisheries and Environment (DFFE). Further changes to the emission factors may be added to the Tax Laws Amendments Act if DFFE publishes further updates. The updated emission factors will take effect for DFFE’s 2023 reporting period, covering emissions during 2022. The amendments will take effect from 1 January 2023.

Carbon Tax Credit Trading 

• In 2023, the National Treasury will consider stakeholder inputs on the possibility of a domestic market to trade tax credits created through the carbon tax. The consultation will focus on the building blocks needed to ensure seamless trading, including the legal nature of carbon credits as a financial asset; trading and post-trade market architecture; licenses for private carbon credit funds; and carbon credit certification.

INVESTMENT INCENTIVES

Section 12I Industrial Policy Project Tax Incentive – Section 12I allows for a discretionary two-year extended compliance period providing taxpayers more time to meet minimum criteria where reasons for non-compliance are as a result of the Covid-19 pandemic. Government will consider legislative amendments to clarify the uncertainty brought about by the extension specifically with regards to the effect of the extension on minimum skills development criteria.

Economic Transformation and Empowerment – Continued support will be provided to black-owned enterprises through the Industrial Development Corporation (R22 billion), the National Empowerment Fund (R4.7 billion) and the Black Industrialist Scheme.

DTIC Programmes – Ongoing support will be provided for existing business incentives with R18.9 billion in grant funding allocated to the Department of Trade, Industry and Competition over a three-year period to stimulate investment in machinery and equipment. The Automotive Investment Scheme has been allocated R728.8 million to support investment into alternative energy vehicle initiatives.

Urban Development Zone – The urban development zone incentive will be extended for two years to 31 March 2025 while a review of the incentive is completed.

OTHER

Diesel refund – The Road Accident Fund (RAF) levy for diesel used in the manufacturing process (such as for generators) will be extended to the manufacturers of food products. This will take effect from 1 April 2023, with refund payments taking place once the system is developed and will be in place for two years until 31 March 2025. This relief is implemented to limit the impact of power cuts on food prices.

CONCLUDING COMMENTS

We welcome the proposal for the extension of the section 11D Research and Development and the proposed incentive updates. Further to this, we welcome the much needed support announced towards private investments into renewable energy investments, but we do feel that the timelines for benefitting under the new measures may be too short term in nature to really make a meaningful impact on the current energy crisis. We are surprised that energy storage and inverter investments will not be eligible to be claimed under the rooftop solar incentive announced.

It is encouraging that National Treasury is showing it’s intention to implement measures to support a domestic market for the trading of carbon credits, and we are hopeful that this work can be expedited to provide more certainty and to fast-track the development of carbon offset projects in South Africa.

For additional information please feel free to contact:
Christo Engelbrecht
christo@catalystsolutions.co.za
+27 84 513 8177.

The Future of the R&D Tax Incentive

National Treasury reiterated the Finance Minister’s remarks regarding the importance of the R&D Incentive to the South African economy and the support that government provides for innovation in our country. The session debated the comments received in response to the survey, this led to a robust discussion of the role and future of the incentive and how it should be structured in the coming years.

The main discussion points surrounded the definition of R&D (including the requirement of innovation), making the definition more user-friendly and more in line with the international definition of R&D. Particular attention was given to the qualification of software projects and the impact that the incentive is and can have on SMMEs. The government is also considering removing the internal business process exclusion – this could open up the incentive to a wider scope of applications.

Treasury and the DSI were extremely open to hearing from the R&D community and are taking all comments and suggestions under consideration. We should see significant progress and improvements to the incentive in the coming months – we have already started testing a new online application system.

As always, we will keep you updated on all of the happenings surrounding innovation incentives!

The bottom line remains unchanged – apply early and apply often to maximise the benefit from the incentive.

DFFE’s Validation and Verification Guideline for GHG Emissions (Nov 2021)

The South African Department of Forestry, Fisheries and Environment (DFFE) has recently published the final Technical Guidelines for Validation and Verification of Greenhouse Gas Emissions (the Guidelines). A brief summary of the Guidelines is provided below –

i. The requirements are divided into two phases. Phase 1 starts on the on approval of the Guidelines, 12 November 2021, and runs until December 2022. Phase 2 starts from January 2023.

ii. A company is still required to submit its data through South African GHG Emissions Reporting System (SAGERS). However, the following must be noted –

• A company is advised to have a monitoring plan in place, although this is not mandatory. It may become mandatory under Phase 2. Monitoring plans document the organisational and operational boundaries, the emission sources, the sources of the data, the sources of the conversion factors etc. The monitoring plan can be submitted to DFFE along with the data.
• A company can now have its data immediately approved by DFFE if it has also submitted a third-party verification report with a positive verification outcome.

iii. Once a company has submitted its data through SAGERS, DFFE will review the data. DFFE can either approve the data or require additional actions to be taken. Requiring additional actions to be taken is dictated by the results of internal checks done by DFFE. See the Guidelines for some examples of internal checks to be conducted.

iv. If the internal checks identify that there is a high potential risk of misstatement of the GHG emissions, then DFFE may require one of the following to be done –

• Desktop document review: The company is required to respond to questions raised by DFFE.
• On-site inspection: DFFE conducts an on-site inspection.
• Independent verification: DFFE requests that third party verification be undertaken.

v. Requiring third party verification is dependent on the materiality of the GHG emissions of the company. If there is a high potential risk of misstatement and the GHG emissions are considered high, then DFFE will probably require third party verification. The levels of GHG emissions are given below –

Total tCO2e	Impact of misstatement of facility emissions
>50 000	High
25 000 – 50 000	Moderate
15 000 – 25 000	Low
<15 000	Very Low

Note that the Guidelines allow DFFE full authority to decide which of the additional actions a company must complete.

vi. In Phase 1, third party verification can be conducted by an independent verifier that meets specific competence requirements. In Phase 2, third party verification can only be done by verifiers that are accredited by the South African National Accreditation System (SANAS).

The remainder of the Guidelines deal with the requirements for the third party verification and the verifier itself.

Catalyst Verification Solutions (Pty) Ltd, a company accredited by SANAS for measurement and verification of energy, is in the process of applying to be a verifier for GHG emissions. As a company, we have deep technical expertise in GHG emissions quantification and verification. We can assist you to comply with the above Guideline. If you would like to discuss any of the above further or discuss your GHG emissions verification requirements, then please contact –

joslinl@catalystsolutions.co.za
084 299 6873
christo@catalystsolutions.co.za
084 513 8177

Fuel Savings Capitalization – Section 12L Tax Incentive

With rising fuel prices, companies are looking into their supply chains to cut cost and improve competitiveness. More specifically, companies are asking themselves whether they can make operational changes to improve the fuel efficiency of their fleet or how best they can use new technology to reduce their fleet’s fuel consumption.

However, what some of these companies may not realize is that, in addition to the cost benefit of saving fuel, they can access a tax incentive for fuel savings for a period of twelve months from a specific fuel efficiency intervention. Section 12L of the Income Tax Act No 58 of 1962 (section 12L) offers taxpayers a tax deduction of 95 cents per kilowatt hour saved. The tax saving is then calculated as the 95 cents per kilowatt hour multiplied by the ruling corporate tax rate.

Section 12L can be claimed for savings of any form of energy, including fuels commonly used in logistics such as diesel, jet fuel, and petrol. To put the benefit from section 12L into perspective –

The added benefit of section 12L, at about 20% of the fuel price, is not something you want to leave on the table.

Given that the benefit is substantial, what type of projects qualify? Improvements in fuel efficiency are often realised by implementing new technology or by making operational changes to reduce fuel consumption. Some examples include –

• Replacing vehicles in the fleet with more fuel-efficient vehicles;
• Installing fleet management software to optimise operations;
• Allocating the most suitable vehicles to specific tasks;
• Optimising vehicle capacity (i.e. load management) and route (i.e. route optimisation);
• Reducing vehicle idling; and
• Improving driver behaviour through training and incentivisation.

It is also important to remember that section 12L can also be claimed retrospectively for fuel savings realised from interventions already implemented. Taxpayers that have already implemented fuel efficiency initiatives but have not yet claimed section 12L on the fuel savings, should consider doing so.

It you have implemented or are planning to implement any fuel efficiency initiatives, don’t leave the benefit of section 12L on the table. Contact us. One of the Catalyst Solutions entities is a SANAS-accredited measurement and verification body for energy efficiency that has successfully assisted our clients to access section 12L for several fuel efficiency initiatives.

josh@catalystsolutions.co.za
+27 82 842 7310

wiehanp@catalystsolutions.co.za
+27 84 517 7822

Rethinking clinical trials in a COVID-19 era

While in contrast, Pfizer and BioNTech’s COVID-19 vaccine was developed and approved in a matter of months.

Interesting stat – Did you know repeat volunteers, known as professional lab rats or “human guinea pigs” (a term coined by George Bernard Shaw), can make upwards of R800 000 annually [source: Wing, McHugh].

Having enjoyed steady growth over the last several years, it’s predicted that the global clinical trials market will hit a value of $69.9 billion by 2027.  Dov Paluch, Managing Director at Catalyst Solutions, says this number could potentially even be higher in the face of new pandemic threats as well as reports of Coronavirus mutations.

“This illustrates the sheer speed with which pharmaceutical companies have had to work in the race to find a vaccine for the virus. Pharmaceutical companies have been pushed to create new ways of working, accelerating digital adoption, and innovation across their organizations within weeks—far faster than almost anyone could have imagined.”

How clinical trials work

This month, the UK became the first Western country to approve a vaccine, marking a pivotal moment in the global fight against coronavirus.

From a South African perspective, the country is hosting three trials, including for Johnson & Johnson, Novavax, and a partnership between AstraZeneca Plc and the University of Oxford.

There are several stages to vaccine development, such as the exploratory, pre-clinical, clinical, review and approval, manufacturing and quality control stages. A key step in the process of any vaccine development is clinical testing, which involves assigning a vaccine or a placebo to human subjects, then evaluating the health effects over a period of time. There are three phases where humans participate in the trials:

Phase I – Phase 1 testing marks the first time the vaccine is tested in a small group of adults, usually between 20 to 80 people, to evaluate its safety and measure the immune response it generates. Usually, you look at several different vaccine candidates and ultimately choose the one that has the best immune response and evidence of protection. This stage of preclinical work generally lasts one to two years.

Phase 2 – A larger group with different characteristics (such as age and health status) are given the vaccine to further test for safety, effects, and dosage. Phase 2 studies aim to determine the most effective dose and expand the safety experience with the vaccine. Researchers look for expected reactions to the vaccine—which could include anticipated adverse events, like headache, muscle pain, redness and swelling at the injection site or low-grade fevers—as well as serious adverse events, which are expected to be rare, over the entire duration of the study.

Phase 3 – During this stage of the clinical trial, even more volunteers receive the vaccine to study whether it’s effective. It may be that some people do go on to develop COVID-19, even after having been vaccinated, but they may have substantially milder symptoms than those who develop COVID-19 in a control group. Phase 3 trials can sometimes take years and include up to 60,000 people.

A shot in the arm for R&D

COVID-19 has impacted almost every aspect of society and the scientific R&D industry is no exception.  Dov says the medical research ecosystem has been forced into overdrive in response to the virus, spurring unprecedented speed and agility.

There’s no question that the pandemic has forced the pharmaceutical industry to rethink clinical trials, simultaneously creating significant disruption, as well as spurring innovation at a lightning pace.

“While in many respects, the COVID-19 pandemic has reflected a failure of the global health system, it has also revealed the extraordinary resilience of this ecosystem, highlighting the importance of R&D and innovation in guiding us through the pandemic.”

Dov says R&D has proven instrumental in fuelling the innovation engine that is helping the pharmaceutical industry address this and other crises. The virus has also spurred collaboration and the integration of digital solutions in clinical trials. There has also been an increase in virtual trials, which use remote monitoring, teleconferencing, and digital data collection tools to conduct trials outside of traditional clinical trial sites.

“Prior to the pandemic, the pharmaceutical industry had generally been slow to digitize its clinical development processes. In the post-pandemic landscape, we anticipate R&D and technology to take centrestage in the pharma space as the sector is presented with new and previously unseen challenges.”

South Africa’s Section 11D Tax Incentive includes a specific section that was added to deal with the inclusion of clinical trials as qualifying R&D activities for the incentive. For more information on this, get in touch with a member of the Catalyst Team.