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

A-2 APPENDIX
The present investment code includes four tax benefits for approved investment projects:
• 50 percent reduction for 5 years in the industrial tax rate (the company tax)
• Exemption from excise duties on raw materials and equipment
• Double the rate of amortization
• Exemption from the transfer tax on acquisition of fixed assets.
Eligible investments must produce goods for export or import substitution, with local value
added of at least 30 percent. Approval is at the discretion of the National Tax Directorate. The
basic tax code also provides an incentive for investment in agriculture, forestry, and animal
husbandry by setting a preferential tax rate of 20 percent, compared to the standard
“industrial tax” rate of 35 percent. A tax of up to 70 percent applies to income from oil
production. There are no free trade zones, but exporters are exempt from the excise tax. The
SADC database provides no indication of whether exporters have access to inputs free of
import duty. No special investment allowance or investment tax credits are available. In
addition to tax benefits, the incentive program includes preferential interest rates on
financing, an employment subsidy, and subsidies for infrastructure works.
Angola has been suffering triple-digit inflation in recent years, while running large
government deficits. But the fiscal problem is not on the revenue side. Government revenue
has ranged from 44−49 percent of GDP, mostly from the petroleum sector. Non-petroleum
income taxes are a minor source of funds, and there is no immediate need to increase this
component of revenue.
Botswana 107
Botswana provides incentives mainly in the form of attractively low tax rates, and a simple
system for integrating the company tax and dividend tax. The major goals of the incentive
programs are employment, development of the manufacturing sector, citizen empowerment,
and development of small businesses. Tax incentives apply to foreign and domestic investors
alike.
Since 1972, special incentives have been available through Development Approval Orders
(DAOs), normally in the form of a 5-year tax holiday. Only a few companies have taken
advantage of DAOs. In 1996, the Government passed a general DAO for manufacturing,
reducing the basic tax to 5 percent plus a 10 percent additional tax, giving an overall standard
rate of 15 percent for manufacturing. In 1999 a 15 percent tax rate 108 was established for
International Financial Service Centers (IFSC). IFSC companies are also exempt from
107 Supplementary sources include information from the tax subcommittee; IMF Article IV Consultation report
for 2002 and Country Report No. 02/243; PWC Botswana tax information summary 2002 and Botswana
Budget 2003-2004; Kebonang (2001); and interviews conducted in Botswana.
108 This is a simple 15 percent rate; the additional company tax does not apply to IFSC enterprises since they
are not subject to withholding tax on dividends.