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

7-12 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION
SPECIAL EXPORT INCENTIVES (11 COUNTRIES)
Every SADC country except DRC has mechanisms in place to provide exporters with relief
from duty and indirect tax on inputs, consistent with the internationally accepted destination
principal. 99 Ten countries do this through free trade zones (FTZs), under various names.
Other exporters can obtain relief from indirect taxes through bonded manufacturing
arrangements, duty drawbacks, rebates, or exemptions. Exports are zero-rated for VAT in
every SADC country that uses this tax. These provisions are a standard part of a sensible tax
code, and should not tallied as tax incentives.
In addition, 11 countries provide other tax benefits for exporters—all but Angola, Botswana,
and Lesotho. Qualifying exporters can benefit from tax holidays or tax rate reductions in 8
SADC countries. Companies in FTZs can obtain full exemptions in Malawi, Namibia, and
Zambia, and tax holidays in Mozambique (60 percent reduction for 10 years), Tanzania
(exemption for 10-20 years), and Zimbabwe (exemption for 5 years). Reduced tax rates of 15
percent are available to exporters in Mauritius and the Seychelles.
Three countries grant special benefits to exporters in calculating taxable income or the amount
of tax due. Malawi provides an allowance equal to 12.5 percent of gross export sales; in
addition, bonded exporters can deduct an additional 25 percent of their transportation costs.
Namibia and Mauritius allow exporters excess deductions for export marketing and
promotion costs. Mauritius also provides a tax credit of 15 percent to 40 percent of export
volume, subject to the condition that the tax rate does not fall below 15 percent.
South Africa offers special export tax incentives through the Motor Industry Development
Program (MIDP). The MIDP incentive operates not through reductions in the income tax, but
through import duty credits that are granted as a function of the domestic content of export
sales. Swaziland has a similar program, called the duty credit certificate scheme, for the textile
and clothing industry. The value of these duty credits arises from the fact that imports, say of
automobiles, can be procured duty free and sold in the domestic market at duty-inclusive
prices. The difference is a cash benefit, as a function of export sales.
The scope for targeting tax incentives to exporters is constrained by WTO Agreement on
Subsidies and Countervailing Measures (SCM). For countries with per capita GNP above
US$1000 (in constant 1990 dollars), the SCM agreement requires the phasing out of export
subsidies by 2002, including fiscal incentives for export enterprises as such. The main
obligation of lower income countries under the SCM agreement is to avoid introducing new
export subsidies. Existing export subsidies in low-income countries were not prohibited
under the SCM agreement, 100 but they can be “actionable.” This means that they can be
99 Goods purchased and sold between countries of the SACU region are not treated as imports and exports for
tax purposes.
100 The prohibition was to take effect for all WTO members at the end of 2002, including all developing
countries. The WTO is considering appeals to extend the deadline, and in the meantime allowing exceptions.