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

INVESTMENT TAX INCENTIVES IN THE SADC REGION A-11
Businesses operating in the Seychelles Industrial Trade Zone are exempted from business tax,
trade taxes on business inputs, withholding tax, employer’s contribution to social security and
the pension scheme. In addition, the Seychelles has heavily promoted the offshore business
sector, which is administered through the Seychelles International Business Authority.
South Africa 118
Stated goals of the investment incentive programs in South Africa include employment
creation, small business development, industrial development, export growth, spatial
development and the “upliftment” of previously disadvantaged people.
The use of income tax incentives in South Africa was sharply criticized by the Katz
Commission report in 1994. 119 Nonetheless, the government introduced tax holidays in 1996.
Since 1999, however, the government has been minimizing such incentives and relying on
more targeted schemes to provide financing, grants, training programs, marketing support,
and infrastructure development. The Department of Trade and Industry and the Industrial
Development Corporation administer most of these schemes.
Several tax incentive programs remain in effect, applying equally to domestic and foreign
investors:
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Industrial Development Zones are zones in which companies obtain automatic duty-free
access to imported inputs, exemption from VAT on inputs from the domestic economy,
exemption from property and local taxes, and any incentives applicable under other
provisions or programs. The government emphasizes that IDZ companies are not exempt
from labor laws. Exporters outside the IDZs are eligible for rebate or drawback of duties on
imported inputs used in manufacturing or processing for export.
Strategic industrial projects in manufacturing, computer related activities, and research and
development activities can obtain additional capital allowances of 50 percent to 100 percent
on the cost of qualifying industrial assets, subject to caps of R300 million and R600 million,
respectively. The applicable allowance depends on a point scoring system based on an
admirably clear checklist of criteria, as evaluated by a technical committee headed by the
DTI. The additional deduction can only be claimed against income from the respective
project. The SIP allowance provides a substantial effective subsidy for strategic investors.
Motor Industry Development Program. This program provides an incentive for exports of
automobiles and automotive equipment, in the form of import rebate credit certificates as a
function of the domestic content of export sales. The program also provides a Productive
118 Supplementary sources include SARS, 2003 Budget Tax Proposals; National Treasury, Budget Review 2003;
DTI website documents; IMF country report 03/17 and 03/18, 2003; Legwaila (2003a and 2003b); Flatters
(2002); www.sadcreview.com; and interviews conducted in South Africa.
119 Thabo Legwaila, Tax incentives in South Africa: Findings of the Katz Commission, Background paper for the
present study. University of Stellenbosch, May 2003.