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

7-16 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION
Table 7-4
Illustrative Marginal Effective Tax Rate Calculations, SADC Member Countries: Case—Tax
Incentives for Projects Manufacturing Goods for Export
Country
Project Scenario 1 Project Scenario 2 Project Scenario 3 Project Scenario 4
0% debt financing;
50% building + 50%
machinery &
equipment
50% debt financing;
50% building + 50%
machinery &
equipment
0% debt financing;
100% machinery &
equipment
(METR with standard tax system in parentheses)
50% debt financing;
100% machinery &
equipment
Angola 40.9 (55.5) 34.3 (50.0) 40.9 (58.4) 34.5 (54.9)
Botswana 15.5 (34.5) 9.2 (30.5) 15.9 (36.3) 10.1 (33.7)
DR Congo 40.5 (63.2) 37.7 (56.5) 40.5 (65.1) 37.7 (60.1)
Lesotho 18.2 (62.8) 13.9 (59.6) 19.3 (66.3) 15.8 (65.5)
Malawi 0.0 (47.5) 0.0 (43.1) 0.0 (50.8) 0.0 (48.8)
Mauritius 10.6 (26.0) 3.5 (19.6) 8.9 (25.1) 1.4 (20.9)
Mozambique 19.4 (55.4) 9.4 (50.5) 16.0 (58.9) 5.0 (56.2)
Namibia 0.0 (30.2) 0.0 (22.3) 0.0 (21.4) 0.0 (28.9)
Seychelles 19.5 (46.7) 14.8 (35.7) 15.9 (42.4) 14.5 (32.9)
South Africa 20.0 (41.3) 14.6 (34.2) 17.7 (40.3) 12.6 (35.8)
Swaziland 8.3 (50.9) 4.2 (47.3) 8.4 (53.9) 4.3 (52.3)
Tanzania 0.0 (44.5) 0.0 (38.6) 0.0 (49.3) 0.0 (46.3)
Zambia 0.0 (31.1) 0.0 (35.0) 0.0 (34.1) 0.0 (40.7)
Zimbabwe 4.5 (44.2) 2.9 (39.2) 4.3 (47.1) 3.1 (44.6)
Notes:
To isolate the effects of company tax, calculations are based on four illustrative project scenarios, as defined in the
column headers. For each case, it is assumed that investment is foreign owned with a 20% target real rate of return,
inflation rate of 10%, and nominal interest rate of 25% (to accentuate the effect of interest deductibility).
These calculations are based on the tax system in each country with special incentives geared to manufactured exports.
The model takes into account the standard company tax, dividend tax (non-residents), loss carry-forward, capital gains
tax (assuming business sold at year 10), and depreciation for industrial buildings and machinery, and other capital
allowances. For exporters, the import duty on capital goods is assumed to be zero. The calculations exclude excess
deductions other than capital allowances and other technicalities that would require customizing the METR model.
SOURCE: Author's calculations using Dunn-Pellechio METR model described in Chapter 4. The main data source is the
SADC Tax Database, version August 2003. For several countries this version of the SADC database was incomplete or
not fully up-to-date. Other sources used to supplement the database are cited in the notes to Table 7-5 and in the
Appendix. In view of the data limitations, these figures are illustrative only, subject to a full assessment by country
specialists.