While the Treasury awaits the approval of a regulation that could see shipping companies that have vessels registered in South Africa operate tax free, industry players say it would not be a clear-cut decision for them to move their operations locally.
Dirk Hoffmann, the cluster manager of Safmarine Southern Africa, said the company welcomed any initiative that removed costs from the system because it would eliminate price increases for consumers.
However, he said: “Given that Safmarine is part of a global shipping group, we will register our vessels in a manner that is most efficient and enables us to minimise costs on a global level.”
The company currently has no vessels registered in the South African ship register. The last Safmarine ship on the ships register, the SA Oranje, was deleted on January 7, 2011.
The South African ships register has had no merchant vessels on it for years now. To attract companies to move their fleet to the local register, the Treasury proposes a full tax exemption to exempt qualifying companies from income tax, capital gains tax, dividends tax, and withholding tax on interest.
To qualify for the full exemption, companies have to be resident in South Africa and must hold a share or shares in one or more ships that are registered in South Africa and used in international shipping.
The proposals are contained in the draft Taxation Laws Amendment Bill of 2013, which was initially released in July. It is before Parliament and the new tax regime is planned for implementation later this year or in January next year.
The Treasury was targeting existing shipping companies and also hoped to facilitate the entry of new players with the new tax regime. “It is hoped that more jobs will be created as some companies may relocate to South Africa, employ South Africans and more inspectors may be required at our harbours to monitor the ships,” the Treasury said.
But Andrew Pike, a lawyer at maritime, logistics and corporate law firm Van Velden Pike, said the draft tax laws did not go far enough to attract international shipping companies.
“I doubt whether the full tax exemption will be sufficient on its own to attract ships back onto the South African ships register. Most ships are already registered in tax efficient jurisdictions, so without something more to incentivise them in South Africa it is hard to see them migrating to South Africa,” he said.
The Department of Transport’s maritime shipping economic study, which was carried out in 2011, reported that at least 80 percent of ship operations in the world were carried out tax free.
Pike said the Treasury should also look at granting ships a national carrier status and give preference to those with national carrier status to import or export state-owned cargo and only allow ships registered in the local ships register to perform maritime services between South African ports.
“The definition of ‘international shipping’ must be extended to include vessels engaged solely in the coastal trade – at present it applies only to foreign-going ships. If a vessel is engaged solely in coastal trade, it could easily sail outside territorial waters once in a year and then get the exemption, so there is no point in excluding it,” Pike said.
He also pointed out that the relief on withholding tax on interest was extended in the draft legislation only to foreign financial institutions funding construction and improvement of vessels, but not to institutions funding the acquisition of vessels by South Africans.
“This must be amended to include financing the purchase of ships for it to be of interest to financiers,” he said.
Some years ago when companies were pulling their vessels off the local ship register, the Treasury proposed a tonnage tax to replace corporate income tax in 2006. But the proposal was later abolished.
The government views these more comprehensive tax exemptions as more favourable than the tonnage tax.
South Africa already incentivises ship operations with accelerated depreciated allowances on ships. But despite these efforts, no commercial vessels are on the register.
The Transport Department said maritime transport no longer contributed in any measurable extent to the country’s gross domestic product.
It said only the inputs and outputs of port operations delivered a net contribution to the economy.