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

More documents

Recommendations

Info

7-4 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION Figure 7-1 Standard Company and Dividend Tax Rates, SADC Member Countries, 2003 SADC Average MAURITIUS BOTSWANA ZIMBABWE TANZANIA SWAZILAND SOUTH AFRICA MALAWI ZAMBIA NAMIBIA MOZAMBIQUE LESOTHO ANGOLA SEYCHELLES DR CONGO SADC Average SEYCHELLES NAMIBIA MAURITIUS SWAZILAND MALAWI SOUTH AFRICA TANZANIA LESOTHO BOTSWANA ANGOLA MOZAMBIQUE ZIMBABWE DR CONGO ZAMBIA SADC Average MAURITIUS BOTSWANA NAMIBIA SWAZILAND MALAWI SOUTH AFRICA SEYCHELLES TANZANIA ZIMBABWE LESOTHO ANGOLA MOZAMBIQUE ZAMBIA DR CONGO (a) Standard Company Tax Rates 0% 10% 20% 30% 40% 50% (b) Standard Dividend Tax Rates (case: resident shareholders) zero zero zero 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% (c) Combined: Company & Dividend Tax (case: resident shareholders) 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
TAX SYSTEMS AND INCENTIVES IN THE SADC REGION 7-5 against the 15 percent withholding tax on dividends. For example, a company with taxable income of P100 is subject to a basic tax of P15 and ACT of P10, for a total of P25. Any dividend tax due up to P10 is offset by the ACT. Thus, the ACT eliminates tax on dividends for payouts up to P67. Suppose, though, that after-tax profits of P75 are fully distributed. In this case the 15 percent dividend tax of P11.25 exceeds the ACT; thus the company owes dividend tax of P1.25, which increases the total tax rate to 26.25 percent. The point of the offset arrangement is to ensure that income would not go untaxed if a company were to report zero income for tax purposes while paying out profits to shareholders. In this case, the company tax would be zero but the dividend withholding tax would be 15 percent (since the ACT offset is zero). Statutory tax rates tell only part of the story, because the tax burden facing an investor depends on many other elements of the tax system, as well as the type of investment itself (not to mention the quality of tax administration). Recall from chapter 4 that the marginal effective tax rate (METR) can be used to gauge the extent to which the tax system affects the incentive to invest. In essence, the METR shows the extent to which the tax system reduces the rate of return on investment, taking into account not only the basic tax rates but also many technical features of the tax system such as capital allowances, loss carry-forward provisions, and the capital gains tax on disposal of capital assets. Table 7-2 presents a comparison of the METR for each SADC country under the standard tax system (including withholding tax on dividend payments to non-resident shareholders), using four illustrative project scenarios. The scenarios differ according to the composition of the capital stock (machinery only, or a combination of building and machinery) and the form of financing (equity only, or a combination of debt and equity). Under all four project scenarios, the standard tax system in Mauritius offers the lowest METR to investors. The standard systems in Namibia, Botswana and Zambia are also attractive to investors, with the METR under 35 percent. In contrast, the standard tax system in Angola, DRC, Mozambique, 94 Swaziland, and Zimbabwe all impose METRs above 50 percent, which would deter many investors. Highly leveraged investments generally bear a lower METR since nominal interest payments are deductible, whereas dividends are not. Machinery investment tends to face a higher METR than investments combining building and machinery, despite faster depreciation on the former. This is because the examples here assume that machinery has a high import content and that imported capital goods face a 10 percent duty. 94 Most of the tax information for Mozambique was not available in the version of the SADC Tax Database used for this study. Tax parameters for Mozambique were therefore taken from other sources, which may not be fully up to date.
Page 1:
TECHNICAL REPORT Effectiveness and
Page 5 and 6:
Contents Executive Summary xi 1. In
Page 7 and 8:
Contents (continued) ILLUSTRATIONS
Page 9 and 10:
Glossary ACT additional company tax
Page 11 and 12:
Preface The Scope of Work (SOW) for
Page 13:
PREFACE IX Export Development & Inv
Page 16 and 17:
XII EFFECTIVENESS AND IMPACT OF TAX
Page 18 and 19:
XIV EFFECTIVENESS AND IMPACT OF TAX
Page 20 and 21:
XVI EFFECTIVENESS AND IMPACT OF TAX
Page 22 and 23:
XVIII EFFECTIVENESS AND IMPACT OF T
Page 25 and 26:
1. Introduction Why should schemes
Page 27 and 28:
INTRODUCTION 1-3 well administered.
Page 29 and 30:
INTRODUCTION 1-5 from selective to
Page 31 and 32:
2. Taxation, Investment, and Growth
Page 33 and 34:
TAXATION, INVESTMENT, AND GROWTH 2-
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43:
Page 46 and 47:
3-2 EFFECTIVENESS AND IMPACT OF TAX
Page 48 and 49:
Page 50 and 51:
Page 52 and 53:
Page 54 and 55:
3-10 EFFECTIVENESS AND IMPACT OF TA
Page 56 and 57:
Page 58 and 59:
Page 60 and 61:
Page 62 and 63: 3-18 EFFECTIVENESS AND IMPACT OF TA
Page 66 and 67: 4-2 EFFECTIVENESS AND IMPACT OF TAX
Page 95 and 96: 6. Economics of Harmful Tax Competi
Page 97 and 98: ECONOMICS OF HARMFUL TAX COMPETITIO
Page 109 and 110: 7. Tax Systems and Tax Incentives i
Page 111: TAX SYSTEMS AND INCENTIVES IN THE S
Page 115 and 116: TAX SYSTEMS AND INCENTIVES IN THE S
Page 131 and 132: Table 7-5 Elements of Tax Structure
Page 133 and 134: Table 7-5 (continued) Sheet 3 of 4
Page 135 and 136: Notes a Mozambique information Coun
Page 137 and 138: 8. Conclusions and Recommendations
Page 139 and 140: CONCLUSIONS AND RECOMMENDATIONS 8-3
Page 145: CONCLUSIONS AND RECOMMENDATIONS 8-9
Page 148 and 149: R-2 EFFECTIVENESS AND IMPACT OF TAX
Page 154 and 155: A-2 APPENDIX The present investment
Page 156 and 157: A-4 APPENDIX Democratic Republic of
Page 158 and 159: A-6 APPENDIX Government revenue in
Page 160 and 161: A-8 APPENDIX income tax payable by
Page 162 and 163:
A-10 APPENDIX (though they are obli
Page 164 and 165:
A-12 APPENDIX • • • Asset All
Page 166 and 167:
A-14 APPENDIX also get zero import
Page 168 and 169:
A-16 APPENDIX EPZ measure was motiv
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?