Government heeds the call – Tax Holidays for SEZs

March 5, 2013 — Leave a comment
Minister Pravin Gordhan and his 'budget team' on their way to parliment [Picture credit-SARS]

Minister Pravin Gordhan and his ‘budget team’ on their way to parliament [Picture credit – SARS]

After more than a decade of fruitless marketing and billions spent on capital investment, Budget 2013 brings some hope of a turn-around and better fortunes for economic development zones in South Africa.

Minister of Finance, Pravin Gordhan announced, what is an unprecedented move. to bolster support for government’s Special Economic Zone (SEZ)programme. Investors in such zones are expected to qualify for a 15% corporate tax rate, and in addition, a further tax deduction for companies employing workers earning less than R60,000 per year.

This is a significant development in that the previous dispensation under the Industrial Development Zone (IDZ) programme only afforded prospective investors a duty rebate and VAT exemption on imported goods for use in the Customs Controlled Area (CCA) of an IDZ. The reality is that these benefits were simply not enough to woo foreign company’s to set up shop in our back yard, let alone existing big business in South Africa to relocate to these zones. Mozambique, next door, has had much success as are other African countries through the offering of company tax holidays with the introduction of export-focussed special manufacturing facilities.

The SEZ (so it would seem) differs little from the IDZ approach save the fact that the former does not require the location of the economic zone at an international airport, seaport or border crossing. As such, an existing IDZ may ‘house’ a special economic zone, thus maximizing return on investment.

Recent developments in SA Customs realise a provision permitting foreign entities to register as importers or exporters under the ‘foreign principal’ clause in the Customs and Excise Act. Approval of such is dependant on the foreign principal establishing a business relationship with a South African ‘Agent’. This ‘agent’ is required to be registered with the SA Revenue Service as the party representing a ‘foreign principal’ in customs affairs. At this point, the provision is being applied to business entities in BLNS countries who import or move bonded goods into or from South Africa.

Future global application of this provision could boost the possibilities of a broader range of investor to favourably consider SEZ opportunities in South Africa. This option will, no doubt, not go unnoticed by the big audit firms seeking to broker ‘cross-border’ customs facilities for their multi-national clients. I perceive that more introspection is still required concerning ‘non-resident’ banking facilities and transfer pricing issues to enable the global application of the foreign principal concept. But after all this seems a good case for trade liberalisation. Add to this the forthcoming launch of Customs new integrated declaration processing system that will (in time) offer simplified electronic clearance and expedited release facilities for future SEZ clients.

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