South Africa Policy, Plans and Priorities
EPZs, Freeports and other Special Economic Zones
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- 1.4Tax Incentives
- 1.5International Trade Export Promotion
1.3EPZs, Freeports and other Special Economic ZonesIndustrial Development Zones (IDZ) An IDZ is a form of Special Economic Zone that contains a controlled Customs Secured Area (CSA) where there is an exemption from duties, VAT and import duty on machinery and assets. (Other forms of SEZ include export processing zones (EPZs), free ports, enterprise zones and technology parks.) The IDZ provides a location for the establishment of strategic investment projects. It promotes and develops links between domestic and zone-based industries to optimise use of existing infrastructure, generate employment and create technology transfers and enables exploitation of resource-intensive industries. Each IDZ offers direct links to an international port or airport, world-class infrastructure, specially designed to attract tenants, suitability for export-oriented production, dedicated customs support services to expedite excise inspection and clearing, duty-free importation of production-related raw materials and inputs, a zero rate of VAT on supplies procured from South African sources, import status for finished goods which are sold into South Africa, Government incentive schemes, reduced taxation and exemption for some activities/products, access to the latest information technology for global communications. There are currently five IDZs in the country, situated at Mafikeng, OR Tambo International Airport (Johannesburg), Richards Bay, East London and Coega with the latter two being fully operational. Coega was the first IDZ, established in 1996 with construction beginning in October 2002. Government expenditure of about R8bn at Coega includes a deepwater port, and upgrading rail and electricity facilities. The cost of the East London IDZ was about R200m. In addition to IDZs, the government intends establishing special economic zones (SEZ). A Bill to this effect has been published and is currently for comment. The SEZ policy will allow for the designation of different types of economic zones. At the moment, the IDZs are export-orientated and therefore found near ports and airports. However, SEZs would not necessarily have to be export-orientated and could be based anywhere. SEZs allow for a broader range of activities, such as science and technology parks. 1.4Tax IncentivesSouth African Revenue Services (SARS) is responsible for tax incentives. The Income Tax Act, 1962 contains specific tax incentives including: Double taxation avoidance agreements to avoid the full taxation of same income of certain persons, enterprises and property under the laws of two countries have been entered into by South Africa with various countries. The National Treasury announced in August 2010 that it proposes to seek renegotiation of some of these treaties. Depreciation may be claimed in respect of the cost of plant and machinery, implements, utensils and other articles used for the purpose of trade. The allowance generally consists of the amount by which the value of the asset has diminished by reason of wear and tear or depreciation during the year and is calculated according to the declining balance method. Capital allowance write-off over 5 years at 20% per annum on a straight line basis in respect of machinery and equipment used for the first time in a manufacturing or similar process. A wear-and-tear allowance is available annually for machinery and equipment, which do not qualify for the 20% capital allowance. Rates are not prescribed and are subject to the tax authorities that favour the diminishing balance method of calculating wear and tear. However, in respect of non-manufacturing plant and machinery, office equipment, furniture and motor vehicles the following rates are normally granted: office equipment (10%), office furniture (10%) and motor vehicles (20%). Five percent depreciation allowance is allowed annually on cost of buildings (and improvements) where the building is used in a manufacturing or similar process and the building or improvement is commenced after 1 January 1989. There are initial and annual depreciation allowances on ships and aircraft and special depreciation allowances on hotel buildings and equipment. Patents, copyright, trademarks, designs and other intellectual property acquiring and developing costs incurred before October 29 1999 may be written off over the expected life of such assets or 25 years, whichever is the shorter or if incurred after October 29 1999 the allowance per year shall amount to 5% of the amount of the expenditure connected with the use of an invention, patent trade mark, or copyright or 10% of the amount of the expenditure connected to the use of any design. Capital investment on buildings and equipment used exclusively for scientific research and approved by the Council for Scientific and Industrial Research (CSIR) may be written off, on a straight line basis, at the rate of 25% per year. Employee housing may avail of special deductions and allowances for construction costs. Lease premiums paid for the use of land or buildings, plant and machinery, film recordings or advertising matter connected therewith, patent, design, copyright or similar property and any know-how connected with all of the above may be written off over periods for which the right of use has been granted or 25 years, whichever is shorter. 1.5International Trade & Export PromotionThe International Trade Administration Commission ITAC is a statutory body formed under The International Trade Administration Act No 71 of 2002. The object of the Act is to foster economic growth and development in order to raise incomes and promote investment and employment in RSA and within the Common Custom Area by establishing an efficient and effective system for the administration of international trade subject to the Act and the SACU agreement. ITAC is to create an enabling environment for fair trade, through efficient and effective administration of trade instruments, tariff investigations, trade remedies, import and export control, and provide technical advice on trade matters to DTI. ITED Trade Functions International Trade and Economic Division of DTI functions:
TISA Trade Functions Trade and Investment South Africa (TISA) at DTI aims to increase export capacity and support direct investment flows, through strategies for targeted markets and an effectively managed network of foreign trade offices. South Africa will build on its Market Diversification Strategy to stabilise exports to conventional markets and increase export growth to markets such as Asia, Africa and the Middle East. TISA’s focus is on high-growth markets such as Brazil, Russia, Zimbabwe, the Democratic Republic of Congo (DRC), India and China. The Market Diversification Strategy is complemented by a Product Diversification Strategy to focus on products higher up the value chain in these priority markets. Export Credit and Foreign Investment Insurance Export Credit and Foreign Investments Insurance Act, No. 78 of 1957 promotes trade with countries outside the Republic, by providing for the insurance on behalf of the South African Government of contracts in connection with export transactions, investments and loans or similar facilities connected with such transactions. The Export Credit Insurance Corporation of South Africa (Pty) Ltd (ECIC) provides export credit insurance for goods and services. Insurance cover is provided for losses arising from political risk, expropriation, loss incurred due to any action taken by the host government that prevents the conversion of a local currency, war and civil disturbance, breach of contract, protracted default and insolvency. The ECIC provides credit insurance for 2-10 years. Credit insurance covers up to 90% of the contract value but it is contingent on a national content of at least 50% of the export value. South Africa offers subsidised medium term and long term loans to promote the export of capital goods and services. Financing facilities offered by banks and financial institutions, such as IDC, are enhanced by the credit insurance cover and interest support from ECIC. This support enables exporters of capital goods and services to offer extended credit facilities to foreign buyers by underwriting bank loans and investments outside South Africa. Imported goods bought by the Government must be shipped by vessels owned or operated by South African shipping companies or approved shipping companies, unless such arrangements result in higher costs or excessive delays. Exemptions are granted at the discretion of the Tender Board. All exporters are required to register with the South African Revenue Services (SARS). Exporters must be registered with the Department of Trade and Industry (DTI) to receive export incentives. Trade Legislation Customs and Excise Act (Act No. 912) 1964 Diamond Export Levy (Administration) Act (Act No. 14) 2007, Diamond Export Levy Act (Act No. 15) 2007, Diamonds Act (Act No. 56) 1986, Diamonds Second Amendment Act (Act No. 30) 2005 International Trade Administration Act (Act No. 71) 2003 Manufacturing Development Act, No. 187 of 1993 establishes the Manufacturing Development Board, to provide for the establishment of programmes for manufacturing development; and for incidental matters. National Small Enterprise Act, No. 102 of 1996 provides for the establishment of the Advisory Board and the Small Enterprise Development Agency; and provide for guidelines to be followed by organs of state to promote small enterprise in South Africa and incidental matters.
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