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Johannesburg - Government wants to secure an urgent and major overhaul to the controversial revenue-sharing agreement between member states of the South African Customs Union (Sacu), National Treasury told parliament's finance committee on Tuesday.
While this move has the potential to further increase tensions between members of the globe's oldest customs union, South Africa is emphatic that the current revenue-sharing arrangement is unsustainable.
Treasury also argued the arrangement is exposed to volatility in economic cycles, which affects revenue-sharing forecasts and the budgets of Sacu members. It also encourages too much dependency on South Africa.
In the 2009 financial year, South Africa contributed R45bn to the common revenue pool which represented 98% of Sacu transfers.
Furthermore, about 70% of Swaziland's national budget is made up of revenue from this power-sharing formula which makes its income highly volatile, especially in a downturn.
Sacu revenue for Swaziland dropped by 50% during the recent recession - equivalent to South Africa losing its entire corporate tax income overnight, said treasury chief director Neill Cole.
The second aim of the revenue-sharing overhaul is to ensure that money is better directed to specific infrastructural development projects in the region.
South Africa proposes that money be directed to organisations with the proper skills to drive this process, like the Southern African Development Bank.
South Africa is aiming to table several proposals for the new arrangement, said Cole. "What South Africa could consider doing is that if it is going to retain that R40bn (its customs collection), it could put R20bn into a development fund."
Cole conceded that the process of moving to a new kind of revenue-sharing for the region would have to be phased, so as not destabalise the BLNS countries (Botswana, Lesotho, Swaziland and Namibia).
"What we do need is discussion and research on how to take decisions on what the money will be used for."
Cole also said the overhaul was critical to speed up regional integration. He added that global trends inclined towards tax reform in which taxes on consumables were lowered or removed. This, he said, would also have the effect of reducing the revenue pot.
While MPs were keen to see an arrangement similar to the EU, where Germany contributed more to the pot but also had more say, treasury said South Africa had a responsibility to compensate landlocked BLNS countries for the fact that they had no choice but to pay slightly higher prices for goods that had to come through South Africa.
The revenue formula currently uses three components to calculate revenue shares for member state: a custom component, an excise component and a development component.
The customs share is allocated on the basis of each country's share of intra-regional Sacu imports. The excise portion is allocated according to each country's share of gross domestic product (GDP). The development portion is fixed at 15% of total excise revenue, and this is distributed according to the inverse of each country's per capita GDP.
Aside from dependency issues, there is growing concern that regional integration is not making any progress which will hurt all countries in the long run.
- Fin24.com
While this move has the potential to further increase tensions between members of the globe's oldest customs union, South Africa is emphatic that the current revenue-sharing arrangement is unsustainable.
Treasury also argued the arrangement is exposed to volatility in economic cycles, which affects revenue-sharing forecasts and the budgets of Sacu members. It also encourages too much dependency on South Africa.
In the 2009 financial year, South Africa contributed R45bn to the common revenue pool which represented 98% of Sacu transfers.
Furthermore, about 70% of Swaziland's national budget is made up of revenue from this power-sharing formula which makes its income highly volatile, especially in a downturn.
Sacu revenue for Swaziland dropped by 50% during the recent recession - equivalent to South Africa losing its entire corporate tax income overnight, said treasury chief director Neill Cole.
The second aim of the revenue-sharing overhaul is to ensure that money is better directed to specific infrastructural development projects in the region.
South Africa proposes that money be directed to organisations with the proper skills to drive this process, like the Southern African Development Bank.
South Africa is aiming to table several proposals for the new arrangement, said Cole. "What South Africa could consider doing is that if it is going to retain that R40bn (its customs collection), it could put R20bn into a development fund."
Cole conceded that the process of moving to a new kind of revenue-sharing for the region would have to be phased, so as not destabalise the BLNS countries (Botswana, Lesotho, Swaziland and Namibia).
"What we do need is discussion and research on how to take decisions on what the money will be used for."
Cole also said the overhaul was critical to speed up regional integration. He added that global trends inclined towards tax reform in which taxes on consumables were lowered or removed. This, he said, would also have the effect of reducing the revenue pot.
While MPs were keen to see an arrangement similar to the EU, where Germany contributed more to the pot but also had more say, treasury said South Africa had a responsibility to compensate landlocked BLNS countries for the fact that they had no choice but to pay slightly higher prices for goods that had to come through South Africa.
The revenue formula currently uses three components to calculate revenue shares for member state: a custom component, an excise component and a development component.
The customs share is allocated on the basis of each country's share of intra-regional Sacu imports. The excise portion is allocated according to each country's share of gross domestic product (GDP). The development portion is fixed at 15% of total excise revenue, and this is distributed according to the inverse of each country's per capita GDP.
Aside from dependency issues, there is growing concern that regional integration is not making any progress which will hurt all countries in the long run.
- Fin24.com
