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Tax-friendly incentives position SA as African springboard

Recent efforts to right the country’s listing economy were praised from all quarters at the recent South Africa-French Business Forum, attended by a delegation of French government officials and companies who are in the country to bolster bilateral ties. According to tax consulting director at Mazars, David French, these signals are significant at a time that South Africa is trying its utmost to win back the confidence of international investors.

Commenting during a panel discussion on what the country needs to do to achieve this, French said that despite the positive sentiment at the forum, a near-disaster has been averted following the collapse of governance at SA Revenue Service (SARS). Having had first-hand experience of that decline, while working in the tax authority’s Tax Avoidance and Reportable Arrangement unit until recently, French says that fortunately, the decline was caught just in time.

The extent of the decline at SARS is currently being uncovered by a state-initiated investigation by the Nugent Commission. “What that will do is support an underlying system that is very strong, with National Treasury focused on ensuring that our system remains robust and very focused on attracting investment,” he says.

French emphasised that South Africa had sufficiently solid frameworks that promote trade and investment, including double-taxation treaties with more than 80 countries. “This indicated a willingness from government to promote business-friendly policies that are needed to reassure and attract investors.”

These policies often come down to tax breaks and other investment incentives, which has become a tricky balancing act for government as it tries to meet its social obligations. These are primarily in the form of some 17 million grants that are paid to vulnerable citizens.

French said that despite SARS having missed recent tax collection targets, which impacts its ability to extend investment incentives, he was privy to “one of the best kept secrets in SA tax law”.

“For years, we’ve been working on an international headquarter company regime,” he explained. “We’ve built this to allow the headquarters to be centred in South Africa for investment, particularly into the rest of Africa. We have the systems and everything in place. It’s about getting people to gain the confidence in the country to base themselves here and move out into the continent.”

It is expected that this confidence can be regained in fairly short order and that South Africa can fulfil its destiny as a premiere destination that is business and investment friendly.

French says that this is a role that is expected to only grow in significance as Africa readies itself for an increase in trade – specifically because of the Continental Free Trade Area, to which South Africa is a signatory. “This will see trade barriers between all 55 members of the African Union be relaxed to promote growth and co-operation.”

Trade Minister Rob Davies said in his opening address that the French trade delegation had timed their visit well to coincide with this regional pact nearing implementation.

“Our ultimate refuge as a continent is in our regional integration. It’s not just that it will allow for higher levels of regional trade, but that it will also allow for the emergence of regional value chains that will allow us to move into more diversified and higher value-added activities,” he said.

“South Africa has a clear advantage over many smaller nations due to its advanced infrastructure, robust judicial system and financial services infrastructure. These are all crucial components that foreign investors look for when assessing investment destinations, and therefore support the country’s role as a natural springboard into the rest of the continent,” concludes French.