SACU REVENUE-SHARING ARRANGEMENTS (NEW AGREEMENT)

Customs component

In 1998/99 the total trade surplus between South Africa and the BLNS exceeded R20 billion. By distributing customs revenues according to intra-SACU imports, South Africa provides significant but implicit compensation to the BLNS for the trade benefits (the so-called "cost-raising" and "polarisation" effects) that accrue to South Africa as a result of the customs union.

Using this method, South Africa will retain around 20 per cent of the customs pool. These shares are expected to remain relatively stable over time, though the size of the customs pool will depend upon import values and changes to the SACU tariff regime. Thus, if external tariffs decline, the trade preferences enjoyed by South Africa are eroded and the amount of compensation from South Africa to the BLNS falls in relative terms.

Excise component

The consumption of excisable goods within SACU, and the excise revenue generated as a result of this consumption, is related to the economic size of each of the SACU countries. South Africa, as the largest economy in SACU, can expect to retain around 80% of total excise revenue collected (15% is allocated to the development/stabilisation fund). This will not only provide South Africa with improved revenue stability over time, but will ensure that most of the benefits accruing to SACU from excise policy decisions will flow into the South African fiscus.

Development component

During the negotiations Lesotho, Namibia and Swaziland expressed concern that the customs pool may decline in real terms as a result of the SA-EU trade agreement,' the increased use of duty rebates by South Africa; and further rounds of multilateral tariff liberalisation. On the other hand, the larger SACU economies are less dependent upon the SACU payment. In addition, South Africa and to a lesser extent Botswana, receive a sizeable share of the excise component, and are less vulnerable to changes in the customs pool.

For these reasons, member countries agreed to establish a development component, from which the smaller and most vulnerable SACU economies would benefit most. All countries contribute to the development component, in proportion to their economic size (and share of the excise component), and all countries receive a share of this component. Ministers proposed that the size of this component should initially be set at 15% of the excise pool, but agreed that this ratio should be reviewed and possibly adjusted over time if the revenue share accruing to any one country (including South Africa) falls significantly.

It is envisaged that all five SACU countries will receive near equal shares of the development/stabilisation component. Thus, those countries that receive the largest share of the excise component, contribute most towards and benefit least from the development/stabilisation component (in effect, South Africa is the only net contributor to this component). In addition, it was agreed that the shares accruing to each member state should be adjusted marginally in favour of the lesser-developed countries in SACU. This is achieved using the methodology presented in Table 3 below.

 

Total payment

The total payment to the BLNS is forecast to rise from R10.2 billion next year (2002/03) to around R22 billion in 2011/12 (see Figure 2). Thus, in 2002/03. the SACU payment under the new formula is not expected to differ by much from what is likely to be paid under the existing formula. By 2003/04, this gap is forecast to widen to just under R1 billion, rising to R2 billion in 2005/06.

Looking forward, South Africa is expected to retain around 50% of total customs and excise revenues collected, with Botswana and Namibia receiving the next largest shares. Importantly, approximately 80% of South Africa's revenue is obtained through the excise component, whereas the BLNS receive around 80% of their revenue fr6n~ the customs component. The development component is particularly important for Lesotho and Swaziland, but less so for Namibia and Botswana.

Figure 1: Trade between RSA and the BLNS(email [email protected] for Figure 1)

· In 1998/99 the total trade surplus between South Africa and the BLNS states exceeded R20 billion. In each case, the balance of trade in 1998199 was in the favour of South Africa.

· With the intra-SACU trade balance so heavily in favour of South Africa, it was necessary to review the efficacy of existing SACU arrangements. particularly the revenue-sharing arrangement.

Figure 2: SACU payment (forecast) email [email protected] for Figure 2


· The total payment to the BLNS is forecast to rise from R10,2 billion in 2002/03 to around R22 billion on 2011/12

· In 2002/03, the SACU payment under the new formula is not expected to differ significantly from what is likely to be paid under the existing formula. By 2003/04 the gap is forecast to widen to just under R1 billion, rising to R2 billion in 2005/06.

Figure 3: Composition of SACU payment by component (2002/03 estimate) (email [email protected] for Figure 3)

· While the BLNS states will derive the majority of their revenue from the customs component (around 80%), South Africa will derive the majority of its revenue from the excise component (79%)

 

· The development component assumes greater importance in the

SACU payments to Lesotho and Swaziland, less so for Botswana and

Namibia, and is relatively insignificant in the composition of South

Africa's payment.

For Intra-SACU trade, SACU GDP, SACU GDP/capita and SACU payment by component and country (2002/03 estimate) Tables email [email protected]