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

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8-6 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION Because these problems are often rampant and severe, automatic mechanisms are favored. If discretion is employed to screen beneficiaries or negotiate fiscal benefits, it is essential to have in place effective rules for timely public disclosure to ensure accountability. 8.3 Transparency FISCAL TRANSPARENCY SADC member states should embrace the need for fiscal transparency and move aggressively to implement suitable provisions and systems. The IMF Code of Good Practices on Fiscal Transparency should be the starting point for developing SADC standards. Specifically, member states should commit to: 1. Transparent tax incentive systems, procedures, and criteria. In accordance with Article 2 of the SADC MOU on Co-operation in Taxation and Related Matters, the SADC tax subcommittee has been developing a comprehensive database on tax systems in the region. This work needs to be completed so that the database can be posted for public access in the near future. Member states should then establish sustainable systems for maintaining the database to ensure that the information is fully accurate and up to date. In addition, Member States should agree to publish and post on government and IPA websites both summaries and comprehensive descriptions of the current tax system and tax incentive programs. The publications and postings should include all information contained in the SADC Tax Database plus comprehensive information on procedures and criteria for obtaining tax incentives under each existing program. 2. Public disclosure of discretionary tax incentives granted. Wherever tax incentive regimes involve discretionary screening of beneficiaries or negotiation of fiscal benefits, member states should ensure full and timely public disclosure of decisions on any tax relief so granted. This practice is essential to ensure accountability and guard against misuse of authority. 3. Transparent information on revenue costs. SADC member states should regard revenue foregone through special tax incentives as a policy use of public resources. The amounts involved should therefore be monitored, reported, and subject to public scrutiny, including parliamentary review. The granting of discretionary tax incentives should be subject to budget ceilings consistent with the fiscal program, and reported to Parliament as such. As information technology systems permit, member states should monitor the annual cost of on-going tax incentive programs by developing and implementing tax expenditure budget reports, suitable to local conditions. Governments should convey these reports to Parliament on an annual basis and ensure public access to the information. As far as possible, the information systems should require from beneficiaries
CONCLUSIONS AND RECOMMENDATIONS 8-7 the submission of normal tax returns and other appropriate forms to report the use of special deductions, allowances, credits, rebates, remissions, or other tax benefits. 4. Monitoring mechanisms. Member states should take seriously the need to establish effective systems for monitoring the implementation of projects that receive discretionary fiscal benefits contingent on performance criteria, at least on a random audit basis. Failure to monitor encourages false applications, places public revenue unduly at risk, renders useless any penalty or sanction clauses, and makes it virtually impossible for the government or the public to ascertain the effectiveness of the tax incentive programs. 8.4 Capacity Building TECHNICAL ASSISTANCE To implement the Capacity Building section of the MOU (Article 3), Member States should establish intraregional technical assistance and training programs for improving the analysis of tax incentive policies. Member States should also develop educational programs to help government officials and stakeholders better understand the economic and financial impact of investment tax incentives. ANALYTICAL TOOLS The SADC tax subcommittee should develop a standard kit of analytical tools that Member States can use to analyze the effectiveness and impact of their tax incentive programs, and for the Community to use in comparing tax incentives programs within and outside of the region. The tool kit should include, 1. A model for evaluating the marginal effective tax rates under different regimes and situations. 2. Data systems for monitoring average effective tax rates by sector and size of firm. 3. Guidelines for monitoring and disclosing tax expenditures. 4. Guidelines for screening applicants for selective discretionary incentives, to maximize the cost-effectiveness of incentive programs throughout the region.
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TECHNICAL REPORT Effectiveness and
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Contents Executive Summary xi 1. In
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Contents (continued) ILLUSTRATIONS
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Glossary ACT additional company tax
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Preface The Scope of Work (SOW) for
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PREFACE IX Export Development & Inv
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XII EFFECTIVENESS AND IMPACT OF TAX
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XIV EFFECTIVENESS AND IMPACT OF TAX
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XVI EFFECTIVENESS AND IMPACT OF TAX
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1. Introduction Why should schemes
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INTRODUCTION 1-3 well administered.
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INTRODUCTION 1-5 from selective to
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2. Taxation, Investment, and Growth
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TAXATION, INVESTMENT, AND GROWTH 2-
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3-2 EFFECTIVENESS AND IMPACT OF TAX
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3-10 EFFECTIVENESS AND IMPACT OF TA
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