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

XVIII EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION
⎯ Effective monitoring mechanisms.
9. Technical assistance. In implementing the Capacity Building section of the MOU (Article
3), Member States should develop joint technical assistance and training programs to
improve the analysis of tax incentive policies, as well as educational programs to help
government officials and stakeholders better understand the economic and financial
impact of investment tax incentives.
10. Analytical tools. The SADC tax subcommittee should develop a kit of analytical tools
that can be used by Member States in analyzing the effectiveness and impact of their tax
incentive programs, and by the Community in comparing tax incentives programs within
and outside of the region. The tool kit should include a model for evaluating the marginal
effective tax rates; information systems for monitoring average effective tax rates;
guidelines for monitoring tax expenditures; and guidelines for screening applicants for
selective discretionary incentives.
11. Definition of harmful tax competition (HTC). Member states should consider adding
additional criteria to the conditions listed as evidence of “harmful tax competition” in
Article 4.3(a) of the MOU, based on the OECD (1998) report on harmful tax practices.
12. Areas for cooperation in combating HTC. Article 4.3(b) of the MOU calls on member
states to avoid “introducing tax legislation that prejudices” another member state. This
broad provision should be supplemented by concrete steps to mitigate the adverse effects
of HTC on the Community at large. Some of the recommendations above serve this
purpose by improving policy formulation and accountability. In addition, Member states
should consider the following steps toward deeper cooperation:
⎯ Negotiate bilateral or multilateral protocols or treaties for the effective exchange of
information, including coordination on tax audits and investigation of tax crimes.
⎯ Establish a periodic joint review of existing tax incentive programs to evaluate
compliance with any SADC agreement on tax cooperation.
⎯ Participate proactively in international forums dealing with harmful tax practices.
⎯ Jointly support the concept of an International Tax Organization with a mandate to
evaluate and facilitate international responses to harmful tax practices.
⎯ Develop standards to establish clear and effective legal provisions in each country on
transfer pricing, thin capitalization, and controlled foreign entities.
⎯ Jointly pursue defensive actions to minimize abusive tax avoidance schemes using
cross-border tax differentials.
⎯ Initiate programs for regional fiscal transfers, similar to the structural funding
arrangement in the European Community, to help poorer Member States pursue more