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

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.