Automotive Investment Scheme 2 - Draft Guidelines

The Department of Trade, Industry and Competition has released the draft Automotive Investment Scheme 2 (“AIS2”) guidelines for comment. The following is a snapshot of the most salient proposed changes:

• The proposed AIS2 Guidelines will be effective from 1 July 2021, which aligns with the introduction of the revised Automotive Production and Development Programme Phase 2 – (APDP2) Regulations.
• The AIS2 grant is now taxable whereas the grant paid under the AIS was non-taxable. It appears that the AIS2 will not make an appearance in the 11th Schedule of the Income Tax Act, where other non-taxable incentive programmes are listed.
• Single tiered benefits for OEMs and component manufacturers of 20% and 25% respectively. The Economic Benefit Criteria to achieve higher benefit percentages for both the OEMs and component manufacturers have been removed.
• Inclusion of Alternate Engine Technology (AET) and Energy Efficient (EE) vehicle manufacturers with a higher benefit of 30%. It is not clear whether component manufacturers can also receive this higher benefit for the manufacture of components for supply to an AET, EE or hybrid vehicle platform.
• It appears that the DTIC, when referring to Alternate Engine Technology and Energy-Efficient vehicle manufacturers, is referencing Electric Vehicles, Battery Electric Vehicles and Hybrid powered vehicles.
• There is the phasing-in of enhanced B-BBEE compliance, as per the following table.

• New market entrants effectively have three years before they need to demonstrate Level 4 B-BBEE compliance. However, they need to demonstrate minimum Level 8 compliance in this three-year “grace” period.
• There are potential practical challenges around the implementation of the phasing in of the enhanced B-BBEE compliance due to the timing of events - i.e. financial year ends, audit of financial statements and B-BBEE verification - to achieve the stipulated compliance levels.
• The 50 000 minimum annual production volume for the OEMs has been re-introduced from the original AIS requirement before it was relaxed to 10 000 units which remains the case for the APDP2 Regulations.
• There is a minimum of 1 000 annual production units for the manufacture of EVs, BEVs and Hybrid powered vehicles. This is subject to a commercial viability test to be performed by the DTIC in assessing such a project.
• There is a concession for the introduction of new Tier 2 and Tier 3 component manufacturers, with the minimum turnover requirement being reduced to R 2 million from R 10 million per annum. It is anticipated that the beneficiaries of this turnover relaxation shall be graduates from the Automotive Industry Transformation Fund development initiative.
• There is a lack of consistency between these draft AIS2 guidelines and the APDP2 Regulation - for example, the B-BBEE compliance requirements. The APDP2 only requires compliance whereas AIS2 has the phasing-in of enhanced compliance requirements over time, and the required minimum production volumes are 50 000 units per annum under the AIS2 whereas the APDP2 only requires a minimum of 10 000 units per annum. These inconsistencies need to be addressed for uniform treatment across both support mechanism.

Comments need to be submitted to the DTIC by 14 April 2021. Please contact us if you would like to discuss the points raised here and how these proposed changes could impact your future investments.

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