MBABANE – Minister of Finance Neal Rijkenberg says his company, Montigny, Illovo and Royal Eswatini Sugar Corporation (RES) will not benefit from the proposed tax reduction incentives which are yet to be determined for companies in the sugar, timber sectors.
This is the right opposite of what analysts had thought would happen as stated in the Post Covid-19 Recovery Strategy, wherein it is said a tax dispensation for companies in the sugar, mining, textile and timber industrial economic zones will be established. Simply put, these companies are set to be incentivized by being allocated a special lower tax rate than the standard 27.5 percent company tax.
The provision of tax incentives for different sectors was identified and presented as one of the enablers to invigorate the economy post the pandemic.
Asked what was the criteria used to determine the sectors (mining, textile, timber and sugar) that had to benefit from new tax dispensation, the minister said: “This plan has been formulated by the private sector and they led the work streams. Please check with them.”
He went on to say, he understands is that industrial zones will be set up and investors interested in investing in value adding sugar or timber can apply.
“Existing companies would not qualify, and I do not think that they could pick up all of their plant and move into the industrial sites. Currently most of the timber and sugar gets exported as raw sugar or planks and finding companies to add value to these could obviously benefit the economy,” he said.
According to the Special Economic Zones Act, 2018, investors that will invest in the special zones will enjoy a 20-year tax holiday. These are investors that will set shop at or around King Mswati III International Airport and at the Royal Technology Park. These will not pay the statutory 27.5 percent corporate tax.
As if that is not enough, after the lapse of the 20 years, the companies will then pay five per cent corporate tax forever. According to the Act, the Royal Science and Technology Park and the King Mswati III International Airport were declared as Special Economic Zones (SEZ). The ultimate objective of the act would be to create jobs, diversify the economy and assure value addition on locally produced commodities.
Any company that want to set shop at the special zones is expected to pay E150 000 application fee and E50 000 annual renewal.
It should be mentioned that four companies had already expressed interest to be granted SEZ licences last year. Three of the four were American, Australian and Dubai all of whom had local partners who were credible people within the private sector.
Other tax reforms envisioned include introduction of residency tax reform for big multinationational corporations to pay tax here in Eswatini, establish/conclude tax treaties with many jurisdictions as possible, establish escalating presumptive tax for MSMEs and rate should be comparable to or lower than MSME presumptive tax in South Africa, set-up separate fund for SRA to remit VAT, rebates/refunds, etc. It is further suggested that the exemption on electricity be removed to make it a VAT-able commodity, integrate Eswatini’s VAT system with Mozambique’s system. “Mozambicans doing business in Eswatini must be able to claim their VAT as they are able to do so with South Africa. The VAT can be loaded in a card that can be used to shop in Eswatini,” reads the recovery strategy document in part.
A tax expert who talked to Independent News on condition of anonymity said the policy reform focusing on giving incentives to certain sectors is not something that will boost the country’s economy. The expert said targeting certain sectors is actually is not what tax collecting agents support because it doesn’t guarantee that the state will get the desired proceeds.
“Regarding the earmarked sectors, the it is a known fact that most employees from the textile and forestry (timber) are not contributing to the tax base through remitting PAYE and they also earn meagre salaries which only enable them to afford mostly zero-rated commodities. These are the factors that result in the state losing revenue because these people employed in this sectors are not contributing to the tax base, hence it is a bad idea,” said the expert, adding that companies which should be granted incentives should be those that will employ a large number of people and pay them handsomely so that they can contribute to the fiscus through paying tax.
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