Transcript Review of the SACU revenue-sharing formula

Review of the SACU revenuesharing formula
Standing Committee of Finance
14 September 2010
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Content

Context

An economic perspective of Union

SACU revenue-sharing regimes (1910 to 2002)

How the 2002 formula works and its outcome

Exposure to a volatile form of revenue

Objective of a new formula and proposed changes

Some tentative ideas

Proposed way forward
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Context

In December 2006, SA notified Council that it intends to review
the RSF

Following national consultations and in accordance with Article
43, SA formally proposed the review of the RSF, because:

The revenue sharing arrangement is unsustainable – great volatility

Revenue considerations should not be the single driver of trade
policy decisions

Great deal of polarisation caused by trade and revenue
reconciliation

SACU payments to the BLNS is seen increasingly by the SA public
and parliament as a fiscal burden

RSF limits the possibility of expansion – building block of a SADC
customs union
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An economic perspective of the Union
Nominal GDP @ PPP (US$ bn)
Real domestic demand (R billions)
1,840.6
505.3
25.4
SA
13.9
5.9
Bo
Na
Sw
Le
so
mi
tsw
a
z
tho
bia
ila
an
nd
a
EIU data for 2009
27.6
3.3
SA
64.0
16.4
12.9
Na
Bo
Sw
Le
mi
s
t sw
az
b
i
lan ot ho
ia
an
a
d
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An economic perspective of the Union, cont…
Real export of goods and services
3.1%
Real imports of goods and services
5.1%
2.8%
0.7%
4.6%
86.5%
Botswana
Namibia
Swaziland
EIU data for 2009
5.4%
1.9%
6.5%
83.4%
Lesotho
South Africa
Botswana
Namibia
Swaziland
Lesotho
South Africa
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SACU revenue-sharing regimes – 1910; 1969
and 2002
1910
Size matters
1969
SA keeps residual
2002
Shares based on
forecast and
reconciled against
actual collections and
intra-trade data
SA collected and distributed according
to size of economies
• Share calculated for BL(N)S based
on trade data of past 3-years
• SA received residual
• Adjustments made in year t+2
• Revenue earned from customs and
excise
• Customs component is redistributive
• Introduced a development
component
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Workings of the 2002 revenue sharing formula
Customs
component
• CIF value
• Imports from member states
into area
• % of CIF value of intra-SACU
imports
Excise
component
• Value of GDP
• % of total SACU GDP
Development
component
Ci=
Mi
*C
i=n
∑ Mi
i=1
Ei=
GDPi
*E
i=n
∑ GDPi
i=1
• 15% of excise component
Di= 20 * (1-(F/H-1)/10) *I
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Result of 2002 revenue sharing formula
Contribution into CRP
2008/
09
B
L
N
S
SA
R ’m
149.6
100.3
361.0
135.1
45 422.6
0.3
0.2
0.8
0.3
98.4
%
South Africa
BLNS
Received from CRP
2008
/09
B
L
N
S
R ’m 9 001.4 4 097.7 6 621.8 4 989.0
%
19.5
8.9
14.3
10.8
SA
21 456.1
46.5
South Africa
BLNS
SARS Annual Report
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Customs collected by SA o.b.o BLNS

A destination principle was applied to approximately R1.75 billion
worth of goods entering SA and destined for the BLNS in 2006/07 –
goods that enter SA, bonded on route to the BLNS, and the duty
collected when it enters the territory of final destination
Value of bonded goods in 2006/07 – R millions
Destination
Total value

Botswana
776.5
Lesotho
Namibia
188.1
483.0
Swaziland
299.8
SA collected duties of R5.2 million on behalf of the BLNS in 2006/07
Customs duties collected in 2006/07 obo the BLNS – R millions
Botswana
Customs
Duty
Lesotho
Namibia
Swaziland
706.9
11.2
193.9
261.2
1.4
0.051
0.365
3.4
Source: CAPE System operated by SARS Customs
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High dependency on customs revenue
Customs as a percentage of
total revenue
70
• 2006
• 2008
55
• 2010
33
33 34
29
24
12
2
i tz
Sw
an
erl
5
6
12
5
0.1
i
d
ay ania
aw
l
w
a
r
z
M
N o T an
li
il
a
Ma Chi n Braz
15
18
43
d
ia
na f rica
ho
bia
i
a
Ind zil an esot
m
w
A
a
Na Bot s ut h
L
Sw
So
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…and exposed to volatility

Global recession has forced SACU revenue down to pre2005/06 levels

Actual customs revenue declined from a forecast of R31.3 bn to
R22.8 bn in 2008/09

The BLNS will all experience a decline in excess of 50% btw
2009/10 and 2010/11

Revenue will return to 2005/06 levels in 2011/12
%
B
L
N
S
Decline btw ’09/10 and ’10/11
32.2
30.6
31.8
30.7
Incl. recovery of deficit
55.7
53.7
55.6
58.2
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•
Customs revenues a function of the
structure of the tariff book
•
•
•
Low or no tariffs on capacity building
capital goods and most inputs
Customs revenue highly dependent
on consumer goods
•
•
Higher tariffs on final consumer
products-sensitive to demand-side
pressures
About half of all customs revenue
collected from vehicles (29%), Electrical
goods, footwear, beverages and
clothing.
Reasons for sharp decline in
revenue…
•
•
Evident in the large share of capital
goods in VAT collection on imports
Over indebted consumers (low levels of
private credit extension, NCA etc.)
Billions
Trends in SACU Revenue
55
50
45
40
35
30
25
20
2005/06
2006/07
2007/08
2008/09
2009/10
Council Forecasts
Actuals/Estimates
Recovery of 2009/10 deficit
2010/11
2011/12
SACU revenue as a percentage of Budget
Revenue
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A new formula should …

Achieve a sustainable revenue-sharing arrangement

Have a strong development thrust that supports regional
infrastructure

Lead to greater transparency and parliamentary
oversight

Support the expansion of SACU

Contribute to:

a reduction in non-tariff barriers

the harmonisation of customs systems and procedures

fiscal and tax administration reforms
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…will require changes
Proposed changes
Current RSF under 2002
Customs Component


Based on volume of
internal trade
Largely redistributive
Excise Component

Linked to size of GDP
Development

Size of GDP and
percentage of
excise duties

Receive what economy produces

Determined from own collections, reexports and duty drawbacks

Eliminate intra-SACU trade data from
formula

Eliminate excise
Should be a sovereign tax that all
members set individually





Each member contributes based on
GDP and p.c. GDP
Redistributive
Subject to parliamentary appropriation
Partly conditional?
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Some tentative ideas
Customs
 Each member state receives
what they are entitled to:




customs collected in
individual territories
customs collected on behalf
of another member state
re-exports
Revenue distributed as
forecasts in year t and
adjustments in year t+2, in
accordance with above
customs collections
Structural/Development Fund
 Contribution as a
percentage of GDP
 Inverse redistribution of
contribution by each
member state
 Inverse factors can include
GDP and p.c. GDP and
others
 Can be determined at level
of revenue-shares in
2008/09
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Proposed way forward







Presentation sets the tone for discussion and further
study
Negotiations that should not take longer than six
months
Parallel consultations in each Member State
Formulation of changes to 2002 Agreement
Parliamentary ratification of amended Agreement
Council approval of new revenue-sharing
arrangement when determining revenue-shares in
December 2010
Implement new revenue-sharing arrangement in
2011/12
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