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India-SA Business Relations Set to Soar

10 April 2008   (0 Comments)
Posted by: Author: Troopti Naik
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India-SA Business Relations Set  to Soar
Indian companies expanding into South Africa perceive this country to be an excellent investment destination and a gateway to Africa and African investment.But crime, health and safety issues and the perceived high corporate and individual tax rates are seen as business challenges.

South African companies moving into India see that country as a highly rewarding investment opportunity.However, the social and cultural issues related to doing business there are problematic.Those are some of the findings of the PricewaterhouseCoopers’ Trade winds Setting sail for investment opportunities in South Africa and India survey, the first conducted by the newly established PwC India-Africa Desk, established to serve a growing need among investors considering both India and South Africa as viable investment destinations.Troopti Naik, PwC leader India-SA, says that India is now the world’s 12th largest economy and the third largest in terms of purchasing power parity."Economic reforms have transformed it into one of the fastest growing economies in the world and global superpower status will probably be achieved within the next decade.During the financial year 2006-2007, India’s GDP grew at an estimated 9.4% on top of growth of 9% in the previous year. 

"Its economic growth can be attributed to a government policy of deregulation, which commenced in earnest in the early 1990s. Policymakers have shifted focus to factors that can drive economic output, such as capital accumulation, technical progress, improvements in the quality of the labour force, freedom from regulatory interference and increases in personal incentives.There is currently an infrastructure development boom that would attract companies from all over, including South Africa.In the other direction, Indian companies are establishing themselves in South Africa because of its buoyant economic growth, low barriers to entry, 2010 potential and our appeal as another emerging market.”
Energy crisis

For inbound companies (from India, coming here) the survey indicates that the Eskom energy crisis and obtaining work permits are also significant challenges.A total of 57% of survey respondents felt that the tax regime in South Africa did not pose a real challenge to their company and regarded this country to be in line with global tax systems.However, many felt that the personal tax rate was too high compared to the benefits received.

The majority of respondents utilised a branch when establishing operations in South Africa.They felt their operations were fully compliant with all tax and regulatory aspects and they had well structured internal control mechanisms and/or well documented tax risk control policies in place.Respondents found South African exchange controls to be burdensome.Of the inbound respondents, 62% utilised the services of auditing firms when seeking advice on investment in South Africa.

Social and cultural challenges 

For outbound companies (those in South Africa moving to India) India is viewed as an excellent investment opportunity: However, to overcome social and cultural challenges - and to perhaps benefit from lower corporate tax rates for local businesses - the majority of the respondents used or were considering the use of a joint venture with an Indian enterprise.

Obtaining work permits and lack of infrastructure and support services posed the next greatest challenges to outbound businesses.The majority of survey participants found the corporate tax regime in India to be complex and rigid and the foreign corporate tax rate exceeded 40%. Despite the taxation complexities, most SA respondents did not have a comprehensive tax risk control policy.Most utilised the services of auditing firms when seeking advice on investments in India.

Naik says all of the participants surveyed were interested in obtaining assistance from a dedicated India-SA team with experience in advising on both inbound and outbound investment."Advice on mergers and acquisitions, expatriate tax and work permits were areas where respondents indicated the greatest degree of interest.”

Indian respondents in the survey included Bank of Baroda, ICICI Bank, Mahindra and Mahindra, Ranbaxy Pharmaceuticals, Satyam Computer Services, State Bank of India, Tata Steel and Zee TV.
Source: By Troopti Naik (TaxTALK)


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