A new automotive production and development programme, due to be implemented by Government next January, is set to bring considerable benefits to industry players who comply fully with the new legislation.
Peter Maxwell, Director: Taxation Services, Manufacturing and Automotive Industries for Deloitte, says that unlike the previous MIDP programme, the production-focused APDP (Automotive Production and Development Programme), will reward light motor vehicle and automotive component manufacturers for both local and export sales, subject to compliance with certain specified requirements.
It will also enable local automotive component suppliers, who are not necessarily targeting the export market, to qualify for APDP benefits provided that they also sell to a light motor vehicle manufacturer.
Both manufacturers of light passenger and commercial vehicles, in addition to component manufacturers, stand to qualify. At this stage, the new legislation does not make provision for the medium and heavy commercial vehicle sector.
Adds Maxwell: “The APDP incentive programme can play an important role in helping keep the automotive industry on a growth path into the future and to encourage further investment into South Africa.”
The automotive industry contributes an estimated 6% to 7% of SA’s GDP – the largest single contributor by sector in the country – which includes the industry’s retail and wholesaling segments.
In terms of the new APDP, two forms of incentive will be available for vehicle manufacturers. In addition to a Production Incentive (PI), a Volume Assembly Allowance (VAA) will be introduced. To qualify for this VAA, vehicle manufacturers (OEMs), must achieve a minimum factory production output of 50 000 vehicles a year.
Maxwell notes that many OEMs started planning some time ago for extra production volumes to take advantage of this APDP provision.
He says that at government departmental level there is an apparent desire to see the entire automotive supply chain working more closely together, in order to benefit fully from the APDP programme.
Indicative of this, says Maxwell, is that automotive component manufacturers will be required to have at least 25% (or R10 million) of their automotive turnover coming from sales to OEMs, to qualify for a PI.
“This in turn is likely to encourage even more component manufacturers to locate their manufacturing bases closer to those of vehicle manufacturers over time,” Maxwell suggests – “in effect creating more automotive clusters.”
“In this way, the APDP programme is designed to reward automotive component manufacturers who are aligned to a South African motor vehicle manufacturer, or are part of an international vehicle manufacturing supply chain.”
The mechanism used to work out the PI is formulated using the selling price of the vehicle or component – less the value of certain “non-standard” materials and components. Included in the “non-standard” amount is the imported content of the materials and components. This difference results in the “value added”.
For these non-standard materials, the incentive will be based on a percentage of their value. This will be tracked along the supply chain and through to the end claimant, using a ‘Standard Material Declaration Form” (SMD.) Maxwell says it is unclear at this stage whether this APDP specific document must be subject to external audit.
“To obtain the maximum benefit from these incentives, automotive industry manufacturers need to ensure that they understand the programme fully and apply it correctly,” says Maxwell.
“As with any other incentive programme, whether in the form of customs duty rebates or refunds – as is essentially the case with the APDP, participants will be closely scrutinised by the authorities.”
“Industry players need to be compliant with both the APDP programme and relevant provisions of the Customs and Excise Act, in order to benefit fully from the new APDP programme. These are complex areas and include key differences to the MIDP”.
He points out that Deloitte is looking forward to the rollout of the APDP and is already assisting its clients with advisory and compliance aspects of the legislation, and is well positioned to assist with designing systems to benefit fully from the APDP.