Corporate tax rates in the SADC region: Determinants and Policy implications

Abstract

Since the 1990s the SADC region has closely followed declining trends that occurred in the industrialised world in terms of corporate tax rates. The main purpose of this paper is to find appropriate explanations behind these trends as experienced in the SADC region. A cross-section panel, including the so-called Seemingly Unrelated Regression (SUR), is applied to uncover the main determinants of corporate tax rates in the region. The main findings of the paper acknowledge the vulnerability of corporate tax rates to global influence. The presence-of-trade variable relating to openness and international pressure takes precedence in the determination of corporate tax rates. The results indicate that higher trade ratios mean lower statutory corporate rates as international influence intensifies. It also tends to confirm the region’s dependency on trade for tax revenues, but also its ability to still attract tax revenues from capital flows. Some evidence exists in terms of an association between the government expenditure-GDP ratio and the statutory and average corporate tax rates, although this is not definitive. The paper re-emphasises the importance of international pressure in terms of future tax policy-making in the SADC region but also opens an avenue for further tax co-operation efforts. J.E.L. Classification: H25, H32 Keywords: Corporate income tax