South Africa achieved a world-first in 2016 with the introduction of a biodiversity tax incentive for private landowners, including communities, who have their land officially declared as a nature reserve in perpetuity in terms of the National Environmental Management: Protected Areas Act (NEMPA), 57 of 2003.
First in South Africa to benefit from the new section 37D tax incentive is Kaingo Private Game Reserve in Limpopo, a 9 000 hectare big-five reserve in one of the country’s key biodiversity areas, rich in endemic plants. The owners went through the rigorous biodiversity stewardship process of officially being declared a nature reserve and received their first tax deduction at the end of 2016.
The journey to achieve this biodiversity tax incentive is a major feat. The Fiscal Benefits Project, as it is called, was made possible by seed funding of R3 million from the WWF Nedbank Green Trust from 2015 to 2017.
This began with the writing of section 37D into the Income Tax Act, 58 of 1962. Section 37D provides a fiscal benefit for the long-term protection and effective management of all areas vital to conservation and ecosystem functioning in South Africa.
‘The incentive enables taxpayers to claim a tax deduction based on the value of the land declared as a nature reserve,’ explains biodiversity finance expert Candice Stevens, who led the project during her time with BirdLife South Africa, in partnership with the South African National Biodiversity Institute. She has since joined Wilderness Foundation Africa (WFA) as head of innovative finance and co-chair of the Sustainable Landscape Finance Coalition with WWF-SA.
The project is a collaboration with National Treasury, the South African Revenue Service, the Department of Environment, Forestry and Fisheries and the Biodiversity Stewardship community of practice in the public and private sectors.
‘Land declared as a nature reserve can range in size from less than 100 hectares to several thousand hectares, with associated biodiversity tax deductions calculated over 25 years, based on the value of the property,’ says Stevens. ‘It ranges from smaller deductions, such as R425 000 over 25 years (or R17 000 a year) to R100 million (R4 million a year) over 25 years,’ explains Stevens.
The tax incentive is not restricted to large operations. It is the biodiversity status of the land that determines whether it qualifies for nature reserve status and can include anything from threatened grasslands to important water source areas, to landscapes with endemic or critically endangered plants and animals.
Since the introduction of this tax incentive, it has been taken to scale with dozens of landowners and communities, large and small, qualifying for it, including 34 nature reserves with a total of 64 communal and private landowners in KwaZulu-Natal in 2019 alone. Among these are properties that include the headwaters of the uMngeni and uMkomazi rivers, which contribute high-quality water yields to eThekwini and surrounding urban areas.
In the Western Cape three nature reserves vital to the conservation of endemic species became eligible in 2019 for a tax reduction in terms of section 37D, while several other reserves will become eligible during 2020 and 2021. Engagement with nature reserves in the Northern Cape and Eastern Cape regarding eligibility for tax reduction in terms of section 37D have made good progress and are ongoing.
Stevens adds that the R3 million seed funding for this project ‘catalysed a national innovation that is creating nationwide benefit, as well as a phenomenal return on investment of more than R100 million from 2015 to 2017. The tax incentive has received international recognition and several awards, with other countries seeking advice from South Africa.
‘Important collaborative partnerships were vital to the success of the biodiversity tax incentive, which is one of South Africa’s foremost biodiversity finance success stories and is providing urgent sustainable finance to the conservation of South Africa’s iconic landscapes,’ says Stevens.
By paying less tax, additional financial resources can be mobilised to better manage landscapes, including funding for clearing invasive alien plant species, managing water catchments and landscapes, boosting antipoaching initiatives, contributing to fence and vehicle maintenance, enhancing animal population management and other activities that also boost employment.
Among the first beneficiaries to benefit from this tax break is Manyoni Private Game Reserve (previously Zululand Rhino Reserve) in KwaZulu-Natal. At 22 000 hectares, Manyoni Private Game Reserve is one of the largest privately owned reserves in the province. In 2004 17 owners dropped their fences to create one large protected area.
The owners of Rhino River Lodge, which is part of Manyoni Private Game Reserve, issued a statement about the biodiversity tax break, which read as follows:
‘The costs and challenges of protecting the environment have increased dramatically over the last fifteen years. This tax incentive releases funds to further improve our environment for the benefit of all species and create further employment opportunities for the rural communities in our area. Our tax saving is significant and if there is one single motivation for investors in the Wildlife Economy to join the programme, this is it.’
In her new role Candice Stevens is working with WFA’s tax specialist and chartered accountant, Ellané van Wyk, on additional biodiversity-focused finance mechanisms. It is all about implementing tax mechanisms to help communal and private landowners look after South Africa’s precious natural resources. Finance solutions for conservation landscapes are urgently needed if we are to address our environmental concerns sustainably and at scale.’