Call to encourage foreign investors

2009-11-07 13:45

PAUL JOURDAN, the deputy chairperson of the Coega Development Corporation (CDC), believes that the government should consider introducing a special tax holiday for South Africa’s Industrial Development Zones (IDZs) to make them more appealing to foreign investors.

“It would be great if there was a temporary tax holiday for exporters. The tax holiday could be applicable for up to seven years before full tax is applied.

“We are the only country with special economic zones that are without a fiscal incentive. All over the world, countries have tax holidays or other fiscal incentives,” he said.

Jourdan, who is a member of the team that designed the country’s IDZ programme, said this week that the tax holiday could help offset interest burdens for tenants who set up new business ventures within the industrial zones.

But Duane Newman, a tax director at accounting firm Deloitte, does not think it a good idea to introduce a special, separate tax dispensation for the IDZs. He said in some countries tax holidays have been abused and have not led to long-term sustainable ­investments.

This was the case in countries that established export processing zones which exempted companies from tax and labour laws, only for those incentives to be abused.

Newman said: “A tax holiday could be abused by investors. You don’t want to create a separate incentive for the IDZs because you could end up with an IDZ becoming a separate country within a country.

“Having a separate incentive will also mean rewriting the legislation and making it more complex.”

He said South Africa had attractive tax incentives for investors, but government needed to make it easier for IDZ tenants to access them.

Tenants located in the country’s five IDZs in Port Elizabeth, Richards Bay, East London, Mafikeng and Johannesburg receive concessions on VAT and custom taxes on imported goods. The CDC operates the Coega IDZ in Port Elizabeth.

The Department of Trade and Industry has introduced the enterprise investment programme which gives tax-free cash grants of up to R30 million to investors that sink in up to R200 million in sectors such as chemicals, automotives, forestry, and transport as well as those that are located in the IDZs.

The department also runs the industrial policy incentives programme, which gives a tax incentive of up to R250 million on a R1.6 billion investment.

Jourdan said the designers of South Africa’s IDZ programme decided to put three of the country’s five IDZs on the coast in order to make it easier and cheaper for manufacturers to reach international markets.

Coega, East London and Richards Bay are the most advanced IDZs in the country and are located on the coast.

Jourdan said most big industrial hubs across the world are located on the coast or along big navigable waterways, which is why South Africa placed its prized IDZs on the coast.

“If you look at the industrial and export hubs in Japan, South Korea, Taiwan, and China, they are all on the coast, and in Europe you find them along its waterways,” he said.

Jourdan predicted that as South ­Africa integrated more with the ­global economy, the next wave of ­industrialisation would take place on the coast as investors take advantage of the world-class infrastructure ­offered by the industrial parks in ­Coega, East London and Richards Bay.

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