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AfricaMoney | October 19, 2017

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SA trade policy puts ‘me’ first

SA trade policy puts ‘me’ first, ignores rest of Africa

A PwC survey revealed that frequent changes in tax laws hinder doing business in Africa. Lack of certainty around tax positions remains one of the main concerns for companies doing business on the continent. Picture: AFP
Despite sustained efforts by the rest of Africa to ensure borderless trading and economic co-operation among their African cousins, South Africa has adopted a new trade policy approach which serves its self-interests at the cost of regional integration.
To protect its own industries, South Africa has imposed trade tariffs and anti-dumping measures on other African states.
The latest news was a green signal by South Africa’s Trade and Industry minister Rob Davies to an increase of tariffs on frozen poultry on an appeal by local poultry players.
At the 16th Africa Tax and Business Symposium hosted by PwC in Mauritius, George Geringer, a senior manager at PwC, said that the government realised that manufacturing as a percentage of gross domestic product has declined from about 40% to about 12% in the past 20 years. Consequently, regional trade relations had been put on the back burner in favour of measures to protect South African manufacturing industries against cheaper imports.
It may be noted that trade between Africa and the rest of the world has increased by over 200% in the past 13 years. The World Bank has expressed the hope that Africa is on the brink of an economic takeoff, similar to China and India two decades ago.
But a key element for Africa to sustain trade growth is regional integration to build economies of scale and size, in order to compete with other emerging markets. However, trade barriers like those set up by South Africa to protect its industry are continually coming in the way of the integration process, says trade analyst from PwC.
South Africa has so far been regarded as the “champion” of the Southern African Development Community (SADC). SADC member countries – including Mauritius, Mozambique, Namibia, Swaziland, Botswana and the Democratic Republic of Congo – eliminate tariffs, quotas and preferences on most goods and services traded between them.
Besides trade barriers, what could also be detrimental to the interests of countries attracting investments into Africa, of which Mauritius deserves special mention, is the clampdown by African tax authorities on perceived tax avoidance. And, the situation is only likely to intensify going forward, amidst efforts by the Organisation for Economic Co-operation and Development (OECD) to address challenges relating to base erosion and profit shifting (BEPS).
Speaking at the PwC symposium, Kyle Mandy, head of national tax technical at PwC South Africa, said multinationals with companies in Africa have already experienced a firmer stance with regards to transfer pricing – mechanism used to price transfer of products from one entity to another in within the same company.
BEPS has been in focus lately amid accusations that large multinationals such as Google, Apple and Starbucks have not been paying their “fair share” of taxes.
Mandy explains that BEPS is the shift of profits from high tax jurisdictions to low tax jurisdictions by exploiting tax loopholes and mismatches between jurisdictions.
African tax authorities are likely to focus on a number of key issues which include transfer pricing, the source and permanent establishment concept, withholdings taxes and deduction restrictions. There has already been movement and changes on a number of these fronts in certain African countries, including South Africa since 2011.
Mandy added that while the OECD has outlined a two and a half year plan starting this July, significant progress in the plan is only likely to be achieved over a five-year period, giving African authorities enough buffer time to implement changes on the fronts outlined above.

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