Taxation enables national governments to collect and redistribute funds into projects and programmes that benefit a country as a whole. While each Member State of the Southern African Development Community (SADC) currently collects and administers its own taxes, it is understood that cooperation and harmonisation on tax measures can produce significant benefits for each Member State and the region as a whole. Coordinated tax policies facilitate Trade throughout the region, and coordinated tax incentives encourage Foreign Investment.
As a step towards common policies on taxation, SADC released its Memorandum of Understanding on Cooperation in Taxation and Related Matters in 2002. This document sets out SADC policy on taxation as it relates to the ultimate goals of economic development and Regional Integration. It also appears in Annex 3 of the Protocol on Finance and Investment.
Building a Common Understanding on Taxation
Under the above Memorandum of Understanding, SADC acknowledges the benefit of common approaches to taxation with an eye toward dissemination of tax information, capacity building, and agreements on tax incentives that foster Investment. Therefore, Member States agree to establish and regularly maintain an online Tax Database that provides comprehensive information about their national tax structures. They will also develop the expertise of their tax officials with support for training programmes and seminars on tax design, policy, and best practices. Furthermore, Member States accede to collaborating on tax incentives that encourage Investment, rather than those that reduce transparency or purely act as a vehicle for tax minimisation. Through these measures, SADC aims to create a clear and transparent system of taxation throughout Southern Africa that harmonises policies to prevent Investment barriers and to avoid double taxation.
SADC Tax Information
The most prominent objective of the Memorandum of Understanding on Cooperation in Taxation and Related Matters was the creation of the Tax Database. This database contains detailed information on the tax policies of each SADC Member States. This Memorandum of Understanding specifies that Member States regularly provide up-to-date information on all of their direct and indirect taxes, the applicable rates, and the dates of the taxes’ implementation. The Tax Database also explains all tax exemptions and incentives, including the dates and specific conditions that apply. Individual pages on each Member State show to which bilateral tax agreements they belong and include statistical breakdowns of that country’s revenues from taxation, specified as direct and indirect levies. This Tax Database is intended to provide visitors with extensive tax information about the Member States of SADC in order to guide investment in the region. As well, it also provides a starting point for further research into Southern African tax data.
Visit the SADC Tax Database and Information Portal.
Tax Incentives and Agreements
In order to drive Investment in the SADC region, many Member States have drafted specific tax incentives and signed mutual beneficial agreements that lighten taxation on businesses, in turn creating an attractive climate for Trade and Industry, including the following incentives:
- Investment allowances in addition to full depreciation allowances;
- Investment tax credits where a certain percentage of the acquisition cost is deducted in addition to normal depreciation deductions, from the tax liability;
- The full cost of acquisition of the asset is allowed as a deduction from the taxable profits of the year in which the investment was made;
- Accelerated depreciation allowances;
- Declining balance depreciation allowances;
- Tax privileged export processing or enterprise zones; and
- Tax holidays.
Seven Member States have already passed independent Investment acts that offer these forms of tax relief. Many of these laws are similar, so cooperation among Member States merely allows SADC to promote the integrated region as attractive for Investment. Integration also facilitates Member States’ acceptance of credit rating, which provides investors with confidence in the SADC region as a whole.
Many Member States also hold bilateral tax agreements with other nations inside and outside the SADC region. With increases in international trade, there are opportunities for accidental double taxation, or for one Member State to unknowingly create an excessively favourable tax regime to the detriment of development in another Member State. For this reason, the Memorandum advises all SADC Member States to agree collectively on a Model Tax Agreement that acts as a common policy for dealing with international partners. Member States also agree to ensure information is widely available, such as in the SADC Tax Database and Information Portal, in order to avoid unintentional tax inequities.
- Protocol on Finance and Trade
- Guidelines for Co-operation in Value Added Taxes in the SADC Region
- Commentary on the Guidelines for Co-operation in Value Added Taxes in the SADC Region