1. Special Tax Zones in South Africa
Dr Craig West
Associate Professor: University of Cape Town
Postdoctoral Research Fellow: IBFD

2. Incentives in South Africa
Many incentive programmes operated by the Department of Trade and Industry
Incentive Zones are limited to Special Economic Zones
Born from Industrial Development Zone (IDZ) programme
Increase foreign direct investment (FDI)
Export value-added commodities

3. IDZ v SEZ
Focused only on coastal regions or regions with an international port
No significant package of incentives
Mainly just an incentive programme
Focused on all regions with significant growth potential
Competitive incentives package
Focuses on the development of strong industrial eco-systems

4. Special Economic Zone (SEZ)
Review of IDZ started in 2007 due to identified weaknesses
Aims of SEZs:
Expand the focus of strategic industrialisation to cover diverse regional development needs and context;
Provide a clear, predictable and systemic planning framework for the development of a wider array of SEZs to support industrial policy objectives, the Industrial Policy Action Plan (IPAP), NDP and the NGP;
Clarify and strengthen governance arrangements, and expand the range and quality of support measures beyond the provision of infrastructure; and
Provide a framework for predictable financing to enable long-term planning

5. Special Economic Zone (SEZ)
Partly in response to:
developments in national economic policies and strategies, such as the National Industrial Policy Framework (NIPF), National Development Plan (NDP) and the New Growth Path (NGP),
developments in the global economic environment, such as the formation of BRICS (Brazil, Russia, India, China and South Africa)
Main focus for national industrial policy

6. The international investment in SEZs
Two most established zones:
COEGA – 33 investors on site – mostly SA, but also Belgium, China, France, Germany, India, Switzerland, UK, and USA
ELIDZ – international footprint includes: South Africa, Belgium, China, Germany, Italy, Spain, Switzerland, Taiwan, UK and USA

7. Current impact of IDZ (now SEZ)
NO. OF INVESTORS ON SITE
EST. PRIVATE INVESTMENT VALUE OF OPERATIONAL INVESTORS(R’000)
NO. OF SECURED INVESTORS(but not operational as yet)
EST. PRIVATE VALUE OF SECURED BUT NOT YET OPERATIONAL INVESTMENT(R'000)
DIRECT EMPLOYMENT
CONSTRUCTION & INDIRECT JOBS
TOTAL EMPLOYMENT
COEGA 33 29
7174
37 448
44 622
ELIDZ 28 4
1997
23 975
25 972
RBIDZ 2 9
300
3961
4 261
DTPIDZ 6 5
505 −
TOTAL 69 47
9 976
65 384
75 360

8. Challenges and Goals of SEZ
Capacity and resources for infrastructure development to unlock investments
Fiscal constraints
Acceleration of infrastructure development
Human capital
Land availability: becoming a major constraints in all regions
Drawn from briefing to the Parliamentary Portfolio Committee for Trade and Industry (19 April 2016) on the implementation of SEZs

9. Challenges and Goals of SEZ
Goal 1: Increase and diversify investments in designated zones
Goal 2: Increase impact of SEZ investments on host regions and communities
Goal 3: Improve sustainability
Drawn from briefing to the Parliamentary Portfolio Committee for Trade and Industry (19 April 2016) on the implementation of SEZs

10. Programme expansion Four operational zones
COEGA
ELIDZ (East London Industrial Development Zone)
RBIDZ (Richards Bay Industrial Development Zone)
DTPIDZ (Dube Trade Port Industrial Developemtn Zone)
Three zones approved but not operational
OR Tambo Airport
Maluti-a-Phofung
Saldanha Bay
Three zones in application stage
Atlantis
Bojanala
Musina/Makhado

11. SEZ environment
Legislation and regulations: SEZ Act now operational, and regulations on applications for designation, operator permit and funding in place
SEZ Advisory Board: Appointed and operational
Capacity Building Programme: Implemented in partnership with Chinese Government
Inter-Departmental Coordination: Joint Task Team between the dti, National Treasury, SARS and ITAC established. Other departments and SOEs part of Project Steering Committees on needs basis
Provincial support: All provinces supported to set up Project Management Units and undertake SEZ planning, development and management.

12. Infrastructure development Duty Free (Customs) and VAT Free
SEZ Incentives
Corporate tax rate: 15%
Infrastructure development
Additional investment and training allowances in respect of industrial policy projects
Duty Free (Customs) and VAT Free

13. Tax incentives summary
Preferential 15% Corporate Tax (standard corporate rate 28%)
Businesses (prescribed in section 24(4) of the SEZ Act) that are located in a SEZ may be eligible for tax relief, including the reduced rate of corporate income taxation. In addition to satisfying the requirements of the SEZ Act, further criteria for some of the available tax incentives are in the Income Tax Act
Building Allowance
Businesses and Operators operating within a SEZ may be eligible for tax relief, including the building allowance, subject to requirements in the Income Tax Act (10% for new or unused buildings acquired in SEZ).
Employment Incentive
Businesses and Operators operating within a SEZ may be eligible for tax relief, including the employment tax incentive subject to requirements contained in the Employment Tax Incentive Act.

14. Tax incentives summary
Customs Controlled Area
Businesses and Operators located within a customs controlled area of a Special Economic Zone will be eligible for tax relief as per the Value-Added Tax Act, the Customs and Excise Act, the Customs Duty Act and the Customs Control Act.
12I Tax Allowance
Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets) – up to ZAR 900 million additional allowance
Brownfield investments (i.e. expansions or upgrades of existing industrial projects) – up to ZAR 550 million additional allowance
Training – up to ZAR 36,000 per employee up to a max of up to ZAR 30 million per project.

15. Other issues
Zones remain subject to SA Constitution and all other laws
Advantage (like large corporations) in having one-stop-shop
No challenges against the SEZ