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

7-2 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION
back tax incentives as part of its tax reform program in 2002. Similarly, Lesotho turned away
from tax holidays after experiencing substantial abuse. The government of Tanzania has been
studying whether current incentive programs have been impairing revenue performance. In
Namibia a study by a major policy institute in 2003 suggested a link between tax incentives
and weak company tax revenues, while a second study in 2002 concluded that revenue
foregone from tax incentives made it difficult to lower the general company tax rate. 92
However, the tide flows both ways. Zambia, for example, introduced new tax benefits in 2003
for companies in export processing zones.
SADC countries differ greatly in terms of their revenue performance and their sensitivity to
revenue risks that would arise if tax incentives are poorly designed, inadequately targeted, or
widely abused. Table 7-1 presents selected fiscal indicators for 1999-2001 (this is the latest
three-year period for which complete data are available). The figures show that DCR,
Tanzania, and Mozambique have been facing very low revenue flows, with taxes yielding no
more than 12 percent of GDP. Other states are mobilizing large revenue flows. Angola tops
the list at 46 percent of GDP, while in Botswana, Lesotho, Namibia, Seychelles, Swaziland,
and Zimbabwe revenue collections exceed of 25 percent of GDP (inclusive of SACU fiscal
transfers, for SACU members). Yet even some of the high-revenue countries have nonetheless
been incurring large budget deficits. In such cases, expenditure control is the first place to
look to restore fiscal balance, but protecting revenue is a vital policy issue.
Four SADC countries—Botswana, Namibia, South Africa, and Swaziland—enjoy a solid fiscal
position of strong revenue yield, sustainable budget balance, and low dependence on foreign
aid. In other SADC countries, the risk of revenue loss from tax incentives must be taken
seriously. Revenue loss from any source has a high opportunity cost in terms of foregone
public services and development programs, or a greater tax burden on other taxpayers.
7.2 Standard Tax Rates
Having in place a basic tax structure that is reasonably competitive is at least as important as
offering special incentives. Figure 7-1 shows the standard statutory tax rates in each country,
excluding tax incentives. The figure includes the company tax, the dividend tax on payouts to
resident shareholders, and the combined effect of both levels of taxation (assuming that after-
tax profits are fully remitted).
The standard statutory rate of company tax clusters at 30–35 percent, with a simple average of
33 percent. Botswana and Mauritius have the lowest standard tax rates in the region, at 25
percent, whereas the Seychelles and DRC have high rates of 40 percent. The tax rate on
dividend distributions to residents clusters around 15 percent. On the low end, Mauritius,
92 See IPPR Opinion No. 8, April 2003, and the report of the Namibian Tax Consortium, December 2002.