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

TAX SYSTEMS AND INCENTIVES IN THE SADC REGION 7-13
subject to challenge if they adversely affect the interests of another WTO member. SADC
Member States need to ensure that their respective incentive schemes comply with the SCM
conditions, to avoid the threat of countervailing action by their trading partners.
ACCELERATED DEPRECIATION (10 COUNTRIES)
Strictly speaking, depreciation rates are “accelerated” if the write-off rate exceeds the real
economic rate of capital consumption. Since the true economic life of a capital good cannot
easily be determined, tax systems apply standardized write-off rates to broad categories of
assets. To simplify the comparison across the SADC countries, the present analysis focuses on
standard depreciation rates for plant and equipment in manufacturing. Depreciation is
viewed as accelerated here if the allowable rate exceeds the (rather arbitrary) figure of 15
percent per year—a figure that Hussey and Lubick (1996) have suggested as an international
norm.
On these criteria, 10 SADC countries offer accelerated depreciation on industrial plant and
machinery. Excluding full expensing (discussed above), the fastest write-off is 50 percent over
2 years in Zambia. Namibia offers a 33.3 percent per year write-off for mining and petroleum,
while South Africa recently adopted a 40-20-20-20 depreciation schedule over 4 years for
manufacturing machinery and equipment. In the Seychelles investments are written off in 3
years under a 5-year schedule that sums to 150 percent of the actual investment cost.
Swaziland and Zimbabwe apply a depreciation rate of up to 25 percent to companies
operating multiple shifts, and in Angola applies this rate to companies with investment
licenses.
DEDUCTIONS FOR TRAINING AND EMPLOYMENT (7
COUNTRIES)
Every SADC country supports training programs through budget outlays. On the tax side,
seven countries go beyond allowing training and employment costs as a qualifying business
expense. Botswana and Swaziland allow a 200 percent deduction for the cost of such
programs. Smaller excess deductions are granted in Lesotho (25 percent), Malawi (50 percent)
and Namibia (25 percent). Two countries offer tax incentives tied to employment or to wage
costs. In Namibia, an extra 25 percent deduction applies to the cost of production line wages,
while manufacturers in Zimbabwe can claim a 200 percent deduction on wages and salaries
for additional employees. South Africa pursues an alternative approach to fostering training by
charging companies a Skills Development Levy equal to 1 percent of total remuneration paid
to employees. The levy generates earmarked funding to support training programs, but it also
adds to labor costs, which creates a (small) disincentive for job creation.