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

INVESTMENT TAX INCENTIVES IN THE SADC REGION A-13
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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.