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

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A-12 APPENDIX • • • Asset Allowance in the form of an import duty credit equal to 20 percent of the value of qualifying new capital assets. 120 The MIDP is widely regarded as a major success story in terms of promoting export growth, but not job growth. 121 A similar temporary program is in place for exporters of textiles and clothing. Since 2002, an accelerated 40-20-20-20 depreciation schedule applies to capital expenditures for manufacturing firms. In 2003 this was extended to scientific research and development enterprises. Special capital allowances are also available for agricultural enterprises, small business corporations, buildings in certain urban development zones, and several other categories. As part of its tax reform program the National Treasury is introducing an annual tax expenditure statement to increase transparency and control of the fiscal costs of tax incentives. 122 Looking at the overall fiscal picture, total revenue of the national government in South Africa averages about 24 percent of GDP, and the overall budget balance is well under control. Swaziland 123 Investment policy in Swaziland is driven by the need to promote and facilitate both foreign and domestic investment. The policy relies mainly on establishing attractive conditions for investment, financing programs, and export credit guarantees. The main investment programs are administered through the Swaziland Investment Promotion Agency (SIPA) Although the government prefers not to emphasize special tax concessions, several incentive schemes are available, applying equally to domestic and foreign investors. Their stated purpose is employment creation, development of small to medium businesses, industrial development, exports, and the “upliftment” of living standards. The main tax incentives are as follows: Free trade zones are authorized, providing the standard benefits to exporters. Exporters of textiles and clothing also qualify for a Duty Credit Certificate Scheme which is scheduled to operate until March 2005. The credits are a function of export sales, and can be used to offset duties on the importation of designated textile and clothing products. New businesses that are approved by the Minister of Finance as Development Enterprises are eligible for a DAO which grants a concessionary tax rate up to 10 percent for 10 years, plus exemption from dividend withholding tax. This provision applies to investments in manufacturing, mining, international services, and tourism. 120 Flatters (2002). 121 DTI, Monitoring the Implementation of the MIDP: Current Developments in the Automotive Industry, Draft 2000. 122 For a listing of current tax expenditures, see: http://www.finance.gov.za/documents/budget/2003/review/annexure_c.pdf 123 Supplementary sources include IMF country report 03/22, 2003.
INVESTMENT TAX INCENTIVES IN THE SADC REGION A-13 • • Tax holidays for 5 years are also available to new businesses in manufacturing industries that are not already present in Swaziland, and which predominantly produce for export. These holidays are also subject to the approval of the Minister of Finance. Income in excess of a formula-based limit is still subject to tax during the holiday period. Accelerated depreciation and additional initial capital allowances of 50 percent are provided for industrial buildings for manufacturing, machinery and equipment for manufacturing, infrastructure investments, and hotels. A 20 percent initial allowance applies to the construction of employee housing and farm buildings. Other tax incentives include a double deduction for approved employee training expenses in designated industries, and a 133-150 percent deduction for expenses incurred by handicraft and cottage industries to increase exports. The fiscal position in Swaziland is fairly good. Tax revenues have averaged more than 25 percent of GDP, with SACU receipts accounting for about half of the total. Company tax amounts to about 8 percent of government revenue, or 2 percent of GDP, which is a very low effective tax rate. The budget deficit has been running at 4−5 percent of GDP in the past two years. Tanzania 124 The aim of Tanzania’s tax incentive programs is to attract productive investment, create employment and enhance exports. The Tanzania Investment Act of 1997 provides the basic framework for investment promotion, though associated tax measures are incorporated into the respective tax legislation. The main change in 1997 was to end income tax holidays outside of export processing zones, in favor of expensing of capital assets and remission from customs duty on capital goods for holders of a Certificate of Investment from the Tanzania Investment Center. The investment regime distinguishes two main categories of beneficiaries: lead sectors and priority sectors. Lead sectors include agriculture, minerals, economic infrastructure, tourism, and petroleum and gas, while priority sectors are manufacturing, natural resources such as fisheries and forestry, aviation, commercial building, financial services, transport, broadcasting, human resource development, and exports. Incentives apply equally to qualifying domestic and foreign investors. Lead sectors qualify for a 50 percent capital allowance (reduced from 100 percent in 2002), with accelerated write-off of the remainder, and a reduced 10 percent withholding tax on dividends (0 percent for mineral companies and economic infrastructure companies). They 124 Supplementary sources include information provided by tax subcommittee; Budget Speech 2003/2004; PWC Budget 2003 report; IMF country reports 02/1 and 03/2, 2003.
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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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XVIII EFFECTIVENESS AND IMPACT OF T
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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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ECONOMICS OF HARMFUL TAX COMPETITIO
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7. Tax Systems and Tax Incentives i
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TAX SYSTEMS AND INCENTIVES IN THE S
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Effectiveness and Economic Impact of Tax Incentives in the SADC ...

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