Western Cape Business News

Send  Share  RSS  Twitter  10 Oct 2008

SHIPPING: Tax Could Attract Shipping Companies


Recent Western Cape Business News

National Treasury has recently released a discussion document in respect of a proposed tonnage tax regime for South African shipping companies.  Tonnage tax regimes have been adopted by a number of countries around the world.  Such regimes essentially tax shipping companies based on a notional profit, calculated according to the number and size of ships operated.  They operate in place of the normal corporate income tax regime.

The proposed introduction of a tonnage tax regime is part of an initiative aimed at attracting shipping companies to South Africa.  Other issues being addressed as part of this initiative relate to the ranking of mortgage claims on the judicial sale of a ship, labour law provisions in respect of ships’ crews, technical maritime legislation and an official national maritime policy.

Tonnage tax regimes around the world are, while generally based on similar principles, all somewhat different in their method of operation.  In developing its discussion document, National Treasury considered a number of international tonnage tax regimes.  The discussion document concludes that the “Dutch model” is the most suitable for South Africa.  The countries that have adopted regimes based on this model include Ireland, Germany, the United Kingdom and Belgium.

A tonnage tax regime is usually regarded as a preferential tax regime.  In the South African context, the introduction of such a regime is seen as necessary in order to attract shipping companies to South Africa (along with the other aspects of the overall initiative).  At the moment, there is only one vessel used for international trade, on the South African ship register.  This is down from a high of 52 such vessels in the 1970’s. 

South Africa is very dependent on maritime trade, with approximately 1 220 deep sea trading vessels regularly calling at South African ports.  These vessels are all foreign registered and crewed and therefore are not contributing to wealth in South Africa, as they would do if they were South African registered.  The decline of the South African shipping industry is therefore seen as an opportunity cost for the country.

The discussion document indicates that an important factor in the decline of the South African shipping industry, is the relatively unattractive business environment for shipping companies in South Africa.  In particular, the South African tax environment is regarded as unattractive compared to those in other jurisdictions.  Other jurisdictions have been able to reverse similar declines through initiatives including tonnage tax regimes.  It is hoped that South Africa will be able to achieve such a result.

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