Effectiveness and Economic Impact of Tax Incentives in the SADC ...

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6-14 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION 9. Jointly pursuing defensive actions to minimize abusive tax avoidance schemes using cross-border tax differentials. 10. Developing programs for regional fiscal transfers, similar to the structural funding arrangement in the European Community, to help poorer Member States pursue more constructive approaches to improving their investment climate, in lieu of aggressive tax concessions. 11. Finally, any regional agreement to mitigate the harmful effects of tax competition requires an effective mechanism for resolving disputes and enforcing remedial actions in response to violations. Otherwise, it will be difficult to sustain cooperation because the logic of the prisoner’s dilemma creates incentives for each state to deviate from the accords, to the detriment of overall economic development in the region. 90 90 An analysis of dispute and enforcement mechanisms is beyond the scope of the present study.
7. Tax Systems and Tax Incentives in the SADC Region This chapter provides an overview of investment tax incentives throughout the SADC region, based on country-specific information from the SADC tax database and other supplementary data sources. 91 At the outset, it is worth reiterating an important lesson from preceding chapters: that tax considerations are not the main determinant of viability for most investment projects. Generous tax incentives rarely stimulate a substantial investment response where the basic climate for doing business is seriously deficient due to political and macroeconomic instability, infrastructure problems, unreliable legal and judicial systems, or inefficient public services. Incentives can even have a detrimental impact on development by impairing revenue mobilization, eroding fiscal capacity to address fundamental problems, and distorting the allocation of investment resources. The present chapter starts with a brief discussion in section 7.1 of the fiscal situation in the SADC countries. Section 7.2 examines the basic company tax structure and presents illustrative calculations of the Marginal Effective Tax Rate (METR) for all 14 member countries. Section 7.3 describes the widespread use of export promotion schemes, tax holidays, differential tax rates, special capital allowances, investment tax credits, and other special deductions. Section 7.4 discusses some successes and failures with investment tax incentives in the region. Section 7.5 examines the framework for tax incentives, including the objectives, procedures, and the need for fiscal transparency. A table at the end of the chapter presents a comparison of key provisions of the various tax systems; more details on the main tax incentive policies of each country are provided in the appendix. 7.1 Revenue Performance Sustainable revenue mobilization is a paramount consideration in any analysis of tax policy. Concerns about revenue were explicitly addressed in Mozambique’s recent decision to scale 91 The SADC database used here is from August, 2003. The supplementary sources are listed in the notes at the end of Table 7-5 below and in the Appendix.
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TECHNICAL REPORT Effectiveness and
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Contents Executive Summary xi 1. In
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Contents (continued) ILLUSTRATIONS
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Glossary ACT additional company tax
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Preface The Scope of Work (SOW) for
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PREFACE IX Export Development & Inv
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XII EFFECTIVENESS AND IMPACT OF TAX
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XIV EFFECTIVENESS AND IMPACT OF TAX
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XVI EFFECTIVENESS AND IMPACT OF TAX
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XVIII EFFECTIVENESS AND IMPACT OF T
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1. Introduction Why should schemes
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INTRODUCTION 1-3 well administered.
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INTRODUCTION 1-5 from selective to
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2. Taxation, Investment, and Growth
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TAXATION, INVESTMENT, AND GROWTH 2-
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3-2 EFFECTIVENESS AND IMPACT OF TAX
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3-10 EFFECTIVENESS AND IMPACT OF TA
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3-12 EFFECTIVENESS AND IMPACT OF TA
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A-6 APPENDIX Government revenue in
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A-8 APPENDIX income tax payable by
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A-10 APPENDIX (though they are obli
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A-12 APPENDIX • • • Asset All
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A-14 APPENDIX also get zero import
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A-16 APPENDIX EPZ measure was motiv
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