Ports regulation in South Africa: An equitable tax rate approach

Abstract

Orientation: The Ports Regulator of South Africa (PRSA) allows South Africa’s National Ports Authority (NPA) to use a rate of return pricing methodology called the Required Revenue (RR) model to annually apply for tariff increases.

Research Purpose: This article compares the pass-through of corporate tax rate approach to the use of an equitable tax rate in the RR model from 2011 to 2017.

Motivation for the study: From 2011 to 2017, the PRSA allowed the use of the pass-through of corporate tax rate (28%) approach in the RR model. However, from 2018 it applied an equitable tax rate approach. It can be argued that the equitable tax rate approach should have been used from 2011.

Research design, approach and method: The calculation of the equitable tax rate uses Transnet’s annual segmental financial statements. The results are compared with the revenue results from the pass-through of the corporate tax rate approach.

Main findings: Applying the equitable tax rate (15.73%) as opposed to a pass-through tax rate (28%), the NPA revenue would have been R2.6 billion (US$187m) lower, a substantial saving for port users.

Practical/managerial implications: Continuing to apply this equitable tax rate approach could result in future annual savings of about R500m (US$36m) for port users if the NPA remains a division. However, if the NPA is incorporated as a subsidiary, then the original pass-through of corporate tax rate approach should resume.

Contribution/value-add: Reports on the development of the equitable tax rate approach and its contribution to economic regulatory methodology.