South Africa is an open economy and its economic growth, prosperity and welfare depend on fully accessing global trade opportunities. Consequently, government is continuously seeking to improve the country's trade and investment environment. This is to be achieved through a host of interventions to reduce the cost of doing business and investing in South Africa. These measures include the introduction of an industrial policy framework, establishment of a robust and predictable tax system, customs administration and tariff reforms, and the stepping up of investments in road, rail and ports infrastructure.
What is chartered-in?
Chartered-in: How charters are to be taken into account?
The tonnage tax initiative is part of a coordinated transport strategy, led by the Department of Transport, with the aim of reviving the maritime industry. Therefore the tonnage tax regime will be framed in such a way so that it contributes to the wider policy objectives as set out in the Maritime Transport Agenda: 2010. Outlined in this strategy document is Government's objective to: develop a comprehensive maritime transport policy, revive the maritime industry, grow the South African register and develop and position South Africa as an International Maritime Centre. The factors, which are also in need of reform to advance the flagging maritime industry are: the Ship Registration Act of 1998, the Merchant Shipping Act, mortgage ranking claims and labour issues. Only once these factors are aligned with international practices of successful shipping nations, can South Africa realistically expect to successfully revive the industry.
Due to its location, South Africa is significantly dependent on maritime trade to transport goods to and from overseas. This is illustrated when considering that maritime exports constitute 95% of total exports by volume, and 93-95% of total imports by value. Presently South Africa is dependent on foreign registered vessels to facilitate its international trade by sea. Only one vessel currently remains on the South African ship register, which is used for international trade. This is a far cry from the 52 vessels which were once registered dating back to the 1970's.
2 ITF is an international trade union federation of transport workers unions. It represents the interest of transport workers union bodies which take decisions affecting jobs, employment conditions, safety etc.
Emphasises a "genuine link" between real owner of a vessel and the flag the vessel flies in accordance with UNCLOS5.
3 Specifies international seafarers code (working conditions at sea etc.).
8 United Nations Convention on the Law of the Sea.
state to enforce violations of international standards (e.g., workers rights). While UNCLOS places an obligation on states to exercise effective jurisdiction and control over their ships, each individual state is free to determine the conditions under which this will occur. Although registration confers nationality to ships, there is no restriction upon states to only register vessels that are owned, operated and crewed by their own citizens.
Most of the countries that have adopted tonnage tax regimes do not emphasise shipping companies having to register their vessels in the country (flag link), but rather to create an economic link in order to qualify for the tonnage tax regime. This is done by ensuring that shipping companies which can prove ownership and strategic management of a vessel, reside in the country. The locality, where effective and strategic management decisions are made, will also establish the nexus for drawing into the income tax net such activities.
In addition, reference in this instance must be made to Article 8 of the OECD Model Tax Convention, which provides that the residence of a shipping company will be determined in the place in which the effective and strategic management of the company takes place. It was this alternative that attracted National Treasury to the tonnage tax system.
Some countries, which also flag blind, might require additional evidence for the fulfilment of management requirements, but in general the necessity for the bulk of physical management and operations is the most important qualifier for inclusion in all of the schemes. Through not having to register their vessel and still enjoy the benefits of the regime, ship owners can have the freedom to choose other beneficial regimes to crew and register their vessel, but have their shipping base in the country offering the tonnage tax regime. This creates flexibility for the ship owner, thereby making the regime more attractive. The country therefore benefits through increased shipping activity and related activities and the revenue generated from it, and not from an increase in the ships register per se.
Such an approach is mainly being used in the European Union countries, where the object is not so much to attract more ships to the register, but to address the problem of their failing shipping/maritime industries. Countries who have adopted such a method, have not only improved their industries through increased direct and indirect employment, but also have managed to increase the number of ships registered in their countries. Examples of such countries are Ireland, the Netherlands, Germany and the United Kingdom.
Chapter 2 9 Currently, South Africa taxes corporate profits at 28 per cent, as announced in the 2008 Budget. 10 International Bureau of Fiscal Documentation: International Tax Glossary, 4th edition, p 359.
The key objective of the tonnage tax regime is to create a business environment which will deliver a number of real advantages for all shipping companies entering the regime. The related domestic business activities, supporting a vibrant shipping industry effectively managed and operated from within the jurisdiction, will constitute further growth in tax base (employment and business income) along with the additional or new tonnage tax income.
Simplicity ― Straightforward and clear-cut tax calculations are the hallmarks of the system.