DISC and FSC are two trade policy instruments of the United States that proV'ide a tax incentive for exporting. The two measures provide a stimulus for investment in the export sector by reduci.ng the cost of capital for exporting firms. According to a model based on the neoclassical theory of optimum capital accumulation, the minimum effect either DISC or FSC can have is surprisingly small, reducing the cost of capital by less than percent in either case. The maximum effect is large, reducing the cost of capital in the export sector by around 20 percent. However, the maximum effect of DISC and FSC is accompanied by side-effects that reduce economic efficiency significantly. These results therefore call into question the effectiveness of DISC and FSC as instruments of trade policy. / Master of Arts

Thesis (MAcc) -- Stellenbosch University, 1999. / ENGLISH ABSTRACT: The current South African tax dispensation does not make provision for a system of group taxation, which gives rise to various tax anomalies. The Katz Commission recommended the implementation of a consolidation system of group taxation in their third interim report. This study investigates the issue of group taxation with the objective of commenting on the Katz Commission's recommendation. Chapter 1 explains the purpose of a system of group taxation and discusses the different forms of group taxation. Furthermore, the theoretical norms or canons are described which can be used to evaluate the current tax treatment of groups as well as the different forms of group taxation. Chapter 2 investigates the current tax treatment of groups by focussing on the tax implications of various intra-group transactions. It is found that the current tax treatment of groups does not satisfy the canons of equity, neutrality, efficiency of tax collection, low administration cost and certainty. Although the absence of a system of group taxation may contribute to technical simplicity, such an absence also leads to complex tax schemes that attempt to exploit favourable tax anomalies or avoid unfavourable anomalies. Chapter 3 exammes certain Issues which may render a system of group taxation unnecessary or undesirable, even if such a system leads to better compliance with the canons of taxation. The conclusion is reached that none of these issues will cause such a result. With regard to the issue of divisionalisation as an alternative to group taxation, it is found that section 39 of the Taxation Laws Amendment, No. 20 of 1994 does not provide an accessible mechanism for divisionalisation. Furthermore, groups may be preferred over divisionalised companies for various commercial and legal reasons. With regard to the issue of limited liability of individual group companies (a benefit which is not available to individual divisions of a single company) it is found that group companies rarely abuse this benefit. In addition, a system of group taxation will complement the concept of limited liability in promoting economic growth. With regard to the issue of concentration of economic control and ownership, the conclusion is reached that group taxation will not lead to further concentration of economic control, as the intra-group shareholding required for group tax treatment will greatly exceed the intra-group shareholding necessary for economic control. A system of group taxation may even lead to the broadening of economic ownership by enabling minority shareholdings in group companies which would otherwise be structured as divisions of existing companies due to tax considerations. Chapter 4 compares the loss transfer system of group taxation with the consolidation system, using the canons of taxation as a reference framework. Because a loss transfer system is similar to the current tax treatment of groups, in the sense that both dispensations treat individual group companies as separate taxable entities, the current tax treatment of groups is included in the above mentioned comparison by implication. It is found that a consolidation system will satisfy the canons of taxation the best. Although such a system carries the risk of undue complexity, it should be possible to design and implement a specific system which will fall within the administrative capabilities of both taxpayers and tax authorities. Chapter 5 examines key recommendations of the Katz commission with regard to group taxation. The writer expresses his agreement with the commission's conclusion that a consolidation system of group taxation should be implemented gradually. Certain adjustments to the commission's recommendations are suggested, which will facilitate quicker implementation and increased simplicity. The current tax treatment of groups leads to tax anomalies which are highly unsatisfactory. From a theoretical as well as a practical perspective, the implementation of a consolidation system of group taxation will represent a significant improvement to the South African tax dispensation. / AFRIKAANSE OPSOMMING: Suid-Afrika beskik tans nie oor 'n stelsel van groepbelasting nie, wat aanleiding gee tot verskeie belastinganomaliee. Die Katz-kommissie het die implementering van 'n gekonsolideerde stelsel van groepbelasting aanbeveel in hulle derde tussentydse verslag. Hierdie studie ondersoek die aangeleentheid van groepbelasting met die doel om kommentaar te !ewer op die Katz-kommissie se voorstelle in hierdie verband. In Hoofstuk 1 word die doel van 'n stelsel van groepbelasting verduidelik, en die verskillende vorme van groepbelasting bespreek. V erder word die teoretiese norme beskryf waaraan die huidige belastinghantering van groepe en die verskillende vorme van groepbelasting gemeet kan word. In Hoofstuk 2 word die huidige belastinghantering van groepe ondersoek deur te fokus op die belastingimplikasies van 'n verskeidenheid intra-groep transaksies. Dit word bevind dat die huidige belastinghantering van groepe nie lei tot billikheid, neutraliteit, effektiewe invordering van die belastinglas, lae administrasiekoste en sekerheid nie. En alhoewel die gebrek aan 'n stelsel van groepbelasting bydra tot tegniese eenvoud, lei dit terselfdetyd tot ingewikkelde, belastinggedrewe skemas wat poog om gunstige belastinganomaliee te benut en om ongunstige belastinganomaliee te vermy. In Hoofstuk 3 word sekere aangeleenthede ondersoek wat moontlik 'n stelsel van groepbelasting onnodig of onwenslik sal maak, selfs al sou so 'n stelsellei tot 'n meer gebalanseerde bevrediging van die teoretiese belastingnorme. Die slotsom word bereik dat geeneen van hierdie aangeleenthede we! so 'n resultaat sal he nie. Met betrekking tot divisionalisering as 'n altematief vir groepbelasting, word beslis dat artikel 39 van die Wysigingswet op Belastingwette, No. 20 van 1994 nie 'n toeganglike meganisme daarstel vir die divisionalisering van bestaande groepe nie. Uit 'n kommersiele en regsoogpunt bestaan daar boonop verskeie redes waarom groepe bo gedivisionaliseerde maatskappye verkies word. Met betrekking tot die beperkte aanspreeklikheid van afsonderlike groepmaatskappye ('n voordeel wat nie tot die beskikking is van divisies van 'n enkele maatskappy nie), word bevind dat groepe in praktyk selde hierdie voordeel misbruik of selfs benut. Voorts sal 'n stelsel van groepbelasting die konsep van beperkte aanspreeklikheid komplimenteer in die bevordering van ekonomiese groei. Met betrekking tot die konsentrasie van ekonomiese beheer en eienaarskap, word beslis dat 'n stelsel van groepbelasting nie die verdere konsentrasie van ekonomiese beheer sal aanhelp nie, aangesien die kwalifiserende aandeelhouding wat vir groepbelastinghantering vereis sal word, die aandeelhouding wat nodig is vir ekonomiese beheer ver sal oorskry. 'n Stelsel van groepbelasting mag voorts hydra tot die verbreding van aandeeleienaarskap, deurdat buiteaandeelhouers direkte belange sal kan opneem in ondernemings wat andersins gestruktureer sou word as divisies van bestaande maatskappye. In Hoofstuk 4 word verliesoordragstelsels en gekonsolideerde stelsels van groepbelasting in die algemeen vergelyk, met die belastingnorme as 'n verwysingsraamwerk. Aangesien 'n verliesoordragstelsel soortgelyk is aan die huidige belastinghantering van groepe, in die sin dat albei bedelings groepmaatskappye as afsonderlike belastingentiteite hanteer, word die huidige belastinghantering van groepe by implikasie ingesluit in die vergelyking. Die slotsom word bereik dat 'n gekonsolideerde stelsel van groepbelasting die mees bevredigende stelsel is in terme van 'n gebalanseerde voldoening aan die belastingnorme. Alhoewel 'n gekonsolideerde stelsel die risiko van kompleksiteit inhou, is dit moontlik om 'n spesifieke stelsel op sodanige wyse te ontwerp en implementeer dat dit wel administreerbaar sal wees. In Hoofstuk 5 word sleutelaanbevelings van die Katz-kommissie met betrekking tot groepbelasting ondersoek. Die skrywer spreek sy instemming uit met die kommissie se voorstelle vir die geleidelike implementering van 'n gekonsolideerde stelsel van groepbelasting. Sekere wysigings word aangebring aan die kommissie se voorstelle, ten einde verdere eenvoud en spoediger implementering teweeg te bring. W anneer die belastinganomaliee as gevolg van die huidige belastinghantering van groepe oorweeg word, is dit duidelik dat die huidige situasie onhoudbaar is. Uit 'n teoretiese en praktiese oogpunt, sal die implementering van 'n gekonsolideerde stelsel van groepbelasting 'n beduidende verbetering van die Suid-Afrikaanse belastingbedeling meebring.