Tax policy gap in southern African countries: Reflections on indirect tax coordination and tax diversity in SADC post Covid-19

• Citation: (2022) 9(2) Journal of Comparative Law in Africa 1
• DOI: https://doi.org/10.47348/JCLA/v9/i2a1
• Published date: 09 March 2023
• Pages: 1-32
• Author: Letete, P.
• Date: 09 March 2023

1https://doi.org/10.47348/JCLA/v9/i2a1

TAX POLICY GAP IN SOUTHERN AFRICAN

COUNTRIES: REFLECTIONS ON INDIRECT

TAX COORDINATION AND TAX DIVERSITY IN

SADC POST COVID-19*

Puseletso Letete†

Abstract

The Southern African Development Community (SADC) tax policy on indirect

tax coordination has mainly been guided by an approach toward the harmonisation

of tax bases, the convergence of tax rates and the movement of taxes toward tax

uniformity. This approach is one envisaged by the member states and reflected in

Annex 3 of the Protocol on Finance and Investment. However, in recent studies,

writers in this area opine that countries within a regional integration economic

area (REC) should instead adopt an approach characterised by tax diversity of the

indirect tax systems, as well as mutual coordination and cooperation to contribute

towards economic integration. Recent literature proposes that tax coordination of

indirect taxes must consider other options that move away from the uniformity

of taxes, rates, and tax base. This paper considers this approach of placing tax

diversity at the centre of the SADC tax policy of coordination of indirect taxes,

particularly VAT and excise taxes. The paper reflects on the previous approaches

that have characterised the implementation of the existing legal framework in tax

coordination in the SADC and critically examines the implementation of the VAT

and excise taxes guidelines and their significance in achieving tax coordination of

indirect taxes. The article emphasises the importance of the SADC realising its

goal of coordinating indirect taxes, particularly post Covid-19, due to the imminent

need to raise more revenue from cross-border trade in the SADC member states to

contribute toward the economic growth of member states.

Key words: SADC tax policy; indirect tax coordination; tax diversity; tax

cooperation; tax harmonisation

Résumé

L’approche de la politique fiscale de la Communauté de développement de l’Afrique

australe (SADC) sur la coordination des impôts indirects est principalement axée

sur l’harmonisation des assiettes fiscales, la convergence des taux d’imposition et le

mouvement des impôts vers l’uniformité fiscale. Cette approche est celle envisagée

par les États membres et reflétée dans l’Annexe 3 du Protocole sur le financement et

* This research article emanated from my inaugural lecture delivered at the University of South

Africa on 25 August 2021. The lecture was dedicated to my late mother ’Mamotloang Eugenie

Tebello Letete who passed on 14 March 2021.

† BA Law, LLB (NUL), LLM (UCT), PhD (Edinburgh). Professor, School of Law, University of

South Africa until 31 August 2022.

(2022) 9(2) Journal of Comparative Law in Africa 1

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2 JOURNAL OF COMPARATIVE LAW IN AFRICA VOL 9, NO 2, 2022

https://doi.org/10.47348/JCLA/v9/i2a1

l’investissement. Cependant, dans des études récentes, des auteurs dans ce domaine

estiment que les pays au sein d’une zone économique d’intégration régionale

(ZIR) devraient plutôt adopter une approche caractérisée par la diversité fiscale

des systèmes de taxe indirecte, ainsi que la coordination et la coopération mutuelles

pour contribuer à l’intégration économique. La littérature récente propose que la

coordination fiscale des impôts indirects doive envisager des options autres que

l’uniformité des impôts, des taux et de l’assiette fiscale. Cet article considère cette

approche consistant à placer la diversité fiscale au centre de la politique fiscale de

coordination des impôts indirects de la SADC, en particulier la TVA et les droits

d’accise. L’article analyse les approches précédentes qui ont caractérisé la mise en

œuvre du cadre juridique existant en matière de coordination fiscale dans la SADC

et examine de manière critique l’application des directives sur la TVA et les droits

d’accise et leur importance dans la réalisation de la coordination fiscale des impôts

indirects. L’article souligne l’importance pour la SADC de réaliser son objectif de

coordination des impôts indirects, en particulier après le Covid-19, en raison du

besoin imminent de générer davantage de revenus grâce au commerce transfrontalier

dans les États membres de la SADC afin de contribuer à la croissance économique

des États membres.

Mots clés: politique fiscale de la SADC ; coordination fiscale indirecte, diversité

fiscale, coopération fiscale, harmonisation fiscale

Introduction

It is argued that ‘in troubled times, focus should be on essentials, and tax

policy is no exception’.1 The role of tax policy is to ‘provide a framework

for tax systems to pursue various goals, in particular, raising revenue for

public spending’.2

The Southern African Development Community (SADC)3 prides itself as

one of the most advanced and successful economic integration groups on

the African continent.4 The 16-member states’ organisation has concluded

1 Traversa, E. ‘EU and international income tax coordination after the pandemics: It is time to

take it personal’ (2021) 49(5) Intertax 388–390 at 388.

2 Chigome, J. ‘A mixed methods analysis of tax capacity and tax effort in the Southern African

Development Community (SADC)’ (unpublished doctoral thesis, University of South Africa, 2020)

at 125.

3 The SADC is a regional organisation which consists of 16 member states which are: Angola,

Botswana, Comoros, Democratic Republic of Congo (DRC), Lesotho, Madagascar, Malawi,

Mauritius, Mozambique, Namibia, Seychelles, South Africa, Eswatini (previously known as

Swaziland), Tanzania, Zambia and Zimbabwe. The 37th Ordinary Summit in August 2017 admitted

the Union of Comoros as the 16th Member of SADC.

4 SADC Secretar iat ‘Status of integration in the Southern African Development Community’

(April 2019) 1–2 available at www.sadc.int [Accessed on 2 July 2021]. See also Robinson, Z. ‘An

overview of commodity tax reform in southern Africa’ (2004) 7 South African Journal of Economic and

Management Sciences 387–426 at 398–399.

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TAX POLICY GAP IN SOUTHERN AFRICAN COUNTRIES: REFLECTIONS

ON INDIRECT TAX COORDINATION AND TAX DIVERSITY IN SADC

POST COVID-19 3

https://doi.org/10.47348/JCLA/v9/i2a1

legal instruments calling for tax coordination and harmonisation in

indirect taxation between these countries.5 Thus, there is a solid basis from

which tax coordination and harmonisation is grounded in this regional

grouping.6 Regional tax coordination may, as Sorensen argues, “be

motivated by the fact that the co-ordinating countries are economically

more integrated with one another than with the rest of the world”.7

The SADC report on the Impact of the Covid-19 Pandemic on the

SADC Economy projected that “with the decline in economic activity

and in commodity prices, government revenues are expected to fall

drastically”.8 After more than two years into the Covid-19 pandemic,

governments are turning their attention to the shortfall in tax revenues,

introducing new policies to recover their expenses or even meet their

expenditures during this time.9 The major task of tax policy in domestic

jurisdictions and at a regional level, is to choose that combination of rates

and instruments which is socially feasible and yields the required amount

of revenue while also minimising the total economic and administrative

costs.10

The purpose of this paper is to reflect on the SADC’s tax coordination

and tax harmonisation policy and attempts to analyse the measures that

have been adopted thus far to realise this policy. The paper also reviews the

tax policy approaches available to the SADC to achieve tax integration.

The article investigates the following questions: How does SADC

engage with tax policy to achieve economic integration with a focus on

indirect taxes?11 Furthermore, to what extent is tax diversity considered

in adopting a tax policy of indirect tax coordination? What are the tax

policy options available for the SADC countries in the coordination of

indirect taxes post Covid-19? These questions are investigated with the

5 Article 6 (1) Annex 3 ‘Co-operation in taxation and related matters’ SADC Protocol on

Finance and Investment (FIP) (2016). These legal instruments are, the Protocol on Finance and

Investment of 2006; the Memorandum of Understanding (MOU) on Cooperation in Taxation and

Related Matters of 2002; the Guidelines for cooperation in Value Added Taxes in the SADC Region

(2016) and the Guidelines for Co-operation in Excise Taxes in the SADC Region (2016).

6 Quak, E. ‘Tax coordination and tax harmonisation within the regional economic communities

in Africa’ (2018) Institute of Development Studies Helpdesk Report 15.

7 Sorensen, P.B. The case for international tax co-ordination reconsidered’ in Ugur, M. (ed) An

Open Economy Macroeconomics Reader (2002) 428–466 at 438.

8 The Impact of COVID-19 Pandemic on SADC Economy (April 2020) www.sadc.int

[Accessed on 6 May 2021]. Also, see the SADC Regional Indicative Strategic Development Plan

(RISDP) (2020) 2020-2030 available at www.sadc.int [Accessed on 25 June 2021] 14.

9 Oguttu, A.W. ‘Tax reforms for Africa to achieve the UN Sustainable Development Goals in

the post-COVID-19 economic fallout’ (2021) 3 British Tax Review 125–154 at 126–127.

10 Shalizi, Z. & Squire L. ‘Tax policy in sub-Saharan Africa: A framework for analysis’ (1988) The

World Bank: Policy & Research Series at 1.

11 The paper focuses on Value Added Tax and excise taxes as types of indirect taxes and that there

is no significant progress on tax coordination on direct taxation.

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