Tax incentives for South African wine producers investing in environmental conservation

Abstract

There is an increasing focus on environmental conservation worldwide, evidenced by such events as the signing of the Kyoto Protocol by developing countries, and by consumers becoming more environmentally conscious. The purpose of this study was to investigate how government could, through tax law, incentivise businesses to invest in environmental conservation. One of the major South African industries contributing to the GDP is the wine industry. South Africa, new in world wine production, is ranked among the top 10 wineproducing countries, together with countries such as Australia. The average foreign consumer is more environmentally conscious, which means that South African wineries also have to become environmentally aware to ensure that their products are competitive in the foreign markets. A negative aspect of investing in environmental conservation is that a substantial upfront capital investment is normally required, which could lead to wineries not investing unless they can see a significant benefit as a result. Given this, the purpose of this study was to determine whether or not there is an income tax benefit for wineries when investing in environmental conservation in terms of the Income Tax Act no.58 of 1962 (hereafter “the Act”). Government can, through tax law, either reward people for doing the right thing or punish them by imposing taxes for doing the wrong thing. The sections of the Act that have been identified as incentivising environmental conservation are Sections 11D, 12B, 12K, 12L, 37B and 37C, all with specific requirements before the incentives can be used. The study contains an analysis of the type of environmental conservation that wineries can carry out and considers whether those conservation activities would enable them to use the incentives stated in the Act. Some of the environmental conservation activities identified that wineries could perform include the use of solar power to minimise their energy consumption, thereby reducing their impact on the environment. Further, there are industrial codes which encourage recycling and waste management, certain aspects of which would enable a winery to use some of the sections in the Act. The incentives available in the Income Tax Acts of other wine-producing countries, such as France, Australia and the Oregon state in the USA, were also reviewed to see how the incentives in their Acts compare with those in the South African Income Tax Act. Lastly, a limited empirical study was conducted to determine the wineries’ perspective in respect of the incentives indicated in the Act and whether or not they find that the incentives encourage them to carry out further environmental conservation.