LETTER: SA needs to boost tax incentives
I need to correct some of the wilder claims by Michael Katz on why tax incentives won’t work
I need to correct some of the wilder claims by Michael Katz in "Why Tax Incentives Won’t Work" (On My Mind, July 16-22).
In fact, tax incentives do work; they are essential in attracting inward investment and stimulating further investment, and they are far from the "pernicious" and wasteful instruments Katz would have us believe them to be.
Corporate tax incentives are equivalent to an average 1% of the total revenue collected by the government, and have been further scaled back in response to the Covid-19 crisis.
The department of trade, industry & competition (DTIC) has the mandate to promote investment, but mainly due to the pandemic it has been hit by a 16% reduction in its budget, with the biggest cut for manufacturing incentives.
Far from incentives being too costly, there is a compelling argument for boosting the value of the state’s incentive offering. There are many instances in which they have been shown to be highly effective in securing investment in manufacturing, greening the economy, underpinning research & development (R&D), and offering black entrepreneurs essential support on the road to becoming industrialists.
Despite all its challenges, SA’s manufacturing sector accounts for 14% of our GDP and is vital in job creation, maintaining exports and assisting the development of the economy.
The government’s own recent assessment report on incentives suggested there should be a national incentive policy framework detailing the budget process and assessing the effectiveness of the incentives, but there was no suggestion they should be scrapped.
In Chile, Thailand, Germany and elsewhere, incentives are still being used and preserved, and we also need them in our national armoury if we are to compete on the global stage.
President Cyril Ramaphosa’s investment conferences would be pretty unimpressive were it not for the incentive packages that are the foundation of our investment recruitment drive.
It is thanks to tax incentives that SA has a world-class automotive hub, which is at the heart of our manufacturing sector, and the textile, clothing and footwear industry would have all but vanished were it not for focused support, driven by incentives and clearer industry plans.
The five masterplans proposed by the DTIC are following in the same direction we took when the automotive sector was developed. These will all need various support mechanisms from the government to flourish.
As we face the headwinds of Covid-19 and the fourth industrial revolution, we should be encouraging more R&D — and incentives are crucial to this. As we align ourselves with the changing environment, we need to reskill our people. We’ve seen this in the auto sector, where most body shops are now run by robotics, and the advanced skills needed for the future can only come from the training and upskilling that are part of the incentive landscape.
State tax incentives do work, are used around the world in the countries we compete with, and will help SA grow and modernise its economy. We need more of them, not fewer.
Senior manager: government grants & tax incentives, Cova Advisory
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