Atlantis SEZ secures infrastructure funding and customs status, but tax and PPP hurdles remain
Atlantis SEZ secures infrastructure funding and customs status, but tax and PPP hurdles remain
Larry Claasen
THE Atlantis Special Economic Zone (SEZ) has had some of the obstacles holding up its development addressed, but others remain unresolved.
In a presentation to Parliament in June, the Department of Trade, Industry and Competition (DTIC) and the Atlantis SEZ said access to funding for bulk infrastructure, a lack of tax incentives, and the absence of a streamlined framework for public-private partnerships (PPPs) were impediments to its development. SEZs are seen as a key way to attract offshore investment into the country.
The presentation noted that although incentives provided to businesses in the SEZs between 2016 and 2024 amounted to R24,2 billion, only R14,8 billion was collected in personal and corporate taxes and rates. It noted that key constraints to the financial performance of the SEZ programme were that only 6 SEZs out of the 12 benefited from the current tax incentives, and only 30 companies from the 224 across all operational SEZs benefit from the tax incentives, due to stringent qualifying criteria.
Bulk infrastructure funding exceeds expectations
Since the presentation, however, progress has been made on some fronts for the Atlantis SEZ. At the time, it said it needed funding for bulk infrastructure. Not only did the funding come through, but its scale surprised the SEZ.
“They have come through well beyond our expectations. The Atlantis SEZ is now in a position to complete the civil works for Zones 2 and 3, and to construct three new factories,” said its CEO, Matthew Cullinan.
In September, the Atlantis SEZ said it had spent R95,5 million on civil works at Zone 1. Of that, 35% of construction spend was directed to SMMEs, creating 451 construction jobs.
Customs Controlled Area status offers duty benefits
Aside from funding for bulk infrastructure, the zone received a further boost when Atlantis Zone 1 was registered as a Customs Controlled Area.
Cullinan said it was too soon to say whether this would make a positive impact, but added that on paper it would substantially benefit any company importing components required to manufacture goods in the zone, as these would come in duty-free.
“Should these be exported, there will be no duty payable. If manufactured for the South African market, duty [is payable] only,” he said.
Tax incentives: National Treasury still unconvinced
Despite these changes, issues around tax incentives and PPPs remain unresolved.
In June, it called on the National Treasury to consider expanding tax incentives to all designated SEZs. But from what he has seen, Cullinan said the treasury is reluctant to change its mind on the issue.
“To the best of our knowledge, the National Treasury is still quite firm in its position that the tax incentives do not provide value for money to the fiscus. It continues to express concern around transfers and under-reporting,” he said.
The tax issue has far-reaching implications for the SEZs. The complexity of the incentives, for example, led companies such as Samsung to disinvest in an SEZ.
PPP framework: o movement from Treasury
There has also been no movement on the National Treasury considering a new PPP framework.
“As far as we know, no steps have been taken to consider this. The issue for us is that the Public Finance Management Act regulations make flexible, rapid and responsive management of the zone impossible. This makes it hard to run a zone effectively,” said Cullinan.
R3 billion investment and 800 jobs
Though progress still needs to be made on tax incentives and a PPP framework, the Atlantis SEZ has attracted over R3 billion in investments and created over 800 jobs.
This includes the R18 million Quantum V3 facility, which is currently under construction using hempcrete and will produce acetylene gas. It is South Africa’s first factory built using the lower-carbon material.
