Plan de gestión administrativa y pedagógica

Barbour (2005: 9), in his assessment of South Africa’s investment incentives, identified a set of guidelines for policy-makers regarding what he considered to be an effective and efficient investment incentive. In Barbour’s assessment, an effective and efficient investment incentive should stimulate investment in the desired sector or location with minimal revenue leakage. It should be transparent and easy to understand, should be implemented and administered by a single agency and should have low administrative costs. In rekindling the earlier work done by Barbour (2005: 9), the OECD (2013: 3 – 4) published a set of proposed ‘best practice’ principles in

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an international effort to promote the management and administration of tax incentives. They agree with Barbour in most of the criteria that he put forward, more particularly that tax incentives need to be administered in a transparent manner and that where possible, they should be consolidated under the authority of one body of government.

James (2013: 38 - 39) argues that incentives could have more transparency and subject to little abuse if they were provided and approved by the legislature. He adds that authorities should ensure that incentives are uniformly granted according to pre- determined procedures that are well known to the general public. James warns that there should be clarity about costs. He also advises that best practice could involve budgeting for the amounts of revenue forgone and revealing them to the people to increase discussion from the general public on the costs and benefits of tax incentives. James’ arguments borrow a leaf from Barbour (2005: 9) and the OECD (2013: 3 – 4). They both comment on clarity with regard to the costs to be incurred, the administration by a single government body, as well as transparency in administration.

The UN (2017: 3) is of the opinion that what is regarded as best practice in terms of tax incentives, should be considered with caution with regard to developing countries based on experiences with developed countries and optimal tax theory. Optimal tax theory could be defined as tax policy which follows a principles-oriented approach to satisfy certain desirable criteria (Sørensen 2010: 212). The UN cites the example of China, Singapore, and Hong Kong where they believe that the investment climate is favourable and they explain that in such countries, investment incentives could generate expected results. They are sceptical of the same happening in most developing countries. James (2013: 1) shares a similar opinion with the UN with regard to a country’s investment climate playing a part in determining whether tax incentives achieve their intended objectives or not. James argues that a country’s investment climate has an impact on the effectiveness of tax incentives most especially in developing countries. The UN (2018: 7) rekindles its 2017 study on tax incentives with a similar view which was also highlighted by James (2013: 1), that

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the effectiveness of tax incentives has a direct relationship to a country’s investment climate.

Tax incentives must be well structured with carefully set goals and objectives with measurable outcomes that have the potential of supporting the evaluation processes (Murray and Bruce 2017: 7 – 8). They urge policy-makers to always apply a combination of conceptual reflections, sound data statistical analysis, and good judgement as they could go a long way in improving the structure of tax incentives. Correa and Guceri (2013: 6) support the use of a wide variety of metrics such as cost measures based on revenue foregone and indicators of economic benefits to society. They also laud the use of economic theory and econometric techniques in measuring the economic effects of R&D tax incentives. Correa and Guceri (2013: 6) add that a clear and simple design helps to increase the number of businesses taking up the incentive which could be essential in enabling the tax relief measure to achieve its intended objectives.

3.8 CONCLUSION

Tax incentives are used as instruments by state governments all over the world to attract investors to invest in particular regions, sectors of the economy, or certain enterprise sizes. The positive spill-over effects of attracting investments such as the creation of employment opportunities, the collection of more revenue through taxing of new businesses, cannot be over-emphasised. South Africa, for one, has put in place different categories of tax incentives to direct investment in different sectors, regions, or categories of businesses in which it wishes to see development taking place at a faster rate.

Differing views regarding tax incentives exist and they represent a division in opinions from researchers, international organisations, and scholars. Much criticism has been raised against tax incentives, and their effectiveness and efficiency have been questioned by scholars in numerous studies. Critics believe that investments would still take place even without tax incentives. They point to the costs associated

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with implementing tax concessions and revenue foregone in the process and as a result, they are convinced that such tax policies are undesirable. Those that support tax incentives believe that tax dispensations indeed have the potential to attract investments in a particular sector or region. They point to a myriad of positive externalities that could also contribute to the social and economic development of the area.

The reality is that tax incentives have positive and negative attributes and countries are still implementing new tax incentives while discontinuing those deemed ineffective and more costly. Caution should be taken in the design and implementation of tax incentives to ensure that no loopholes are available which could lead to exploitation of the tax system. Armed with the theoretical knowledge regarding the much loved yet equally distrusted tax incentives, the discussion turns to the specific case of South Africa’s small business tax incentives which are discussed in chapter 4.

CHAPTER 4

SOUTH AFRICA’S SMALL BUSINESS TAX INCENTIVES

4.1 INTRODUCTION

This chapter presents a discussion and raises concerns of tax incentives available to South Africa’s small businesses. Specific attention is given to the discussion and identification of gaps/concerns within the tax incentives for SBCs and micro- businesses. Tax incentives that may generally apply to small businesses, but not necessarily to SBCs or micro-businesses, are also discussed and concerns thereof are raised in this chapter. The tax incentives for small businesses that are discussed relate to income tax, CGT, and VAT.

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