South Africa Urged To Improve IDZ Regime

by Lorys Charalambous, Tax-News.com, Cyprus

12 September 2011

A paper from the South African Institute of International Affairs has suggested the government needs to consider the provision of further incentives to investors in the country’s industrial development zones (IDZs) to attract the necessary foreign investment.

South Africa introduced IDZs in 2000 through the Manufacturing Development Act. The IDZs aim to attract investment for value-added production and create employment, while allowing for the exploitation of resource-intensive industries and existing industrial capacity.

The South African government offers investors in IDZs various incentives. Generally, they allow for normal trade barriers, such as customs duties and quotas, to be eliminated and give value added tax (VAT) benefits, while bureaucratic requirements are lowered, to attract new business and foreign investments. Nevertheless, despite their potential, the paper notes that there seems to be lacklustre investment in South Africa’s IDZs, which find it difficult to meet their investment targets.

South Africa’s major trading partners in Europe, the US, Latin America, India and China have used special trade zones as a policy instrument for decades. However, it is pointed out that, in addition to the traditional free zone benefits of customs duties and VAT, most trade zones in other countries also offer additional incentives, such as local and national tax relief.

One of the foremost requirements for South African IDZs should therefore be the provision of attractive tax incentives packages. The paper outlines the guidelines provided by the Organisation for Economic Co-operation and Development on different incentives for a country to attract foreign direct investment, and suggests that, from its list, reduced rates of corporate income tax, tax holidays, special investment allowances and investment tax credits, and the special taxation of employees, could be offered.

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