Johannesburg — SA NEEDS to adjust its tax regime in order to entice multinationals to set up operations in the country as a base for expanding into Africa, says an international tax expert.

Wilfried D'Haese, PricewaterhouseCoopers' tax partner based in Belgium, said on a recent visit to SA that the company rate cut in the budget was a positive sign.

"It brings SA's corporate rate, now at 28%, not far off average rates in the European Union, which are about 25%-27%," he said. Another factor multinationals consider when moving offshore is the stability of the tax regime.

"They don't want it being regularly overhauled and need to know incentives will be available for several years."

D'Haese said that the South African system was acceptable in this regard.

One of the shortcomings, however, was exchange control regulations and restrictions on currency transfers.

"The Organisation for Economic Co-operation and Development operates without limitations. W ithholding taxes on outgoing repatriations should be minimal.

A key feature that makes a destination appealing is a low, preferably no, withholding tax on dividends ."

Serge de Reus, a PricewaterhouseCoopers tax partner from the Netherlands based in Johannesburg, said SA could do more by way of exchange control relaxation.

"More flexibility should be given on inward bound transactions, particularly with regard to administrative procedures."

This would make SA more attractive for inbound investments , he said.

D'Haese recommended exemptions on incoming capital gains and the introduction of group taxation relief, where some legal entities were profit making and others were posting losses.

He said foreign companies also wanted consistently interpreted tax laws.

"There should be a rulings commission that is part of the tax administration, which will issue independent binding rulings. "

SA recently introduced its own rulings system. D'Haese said the rulings commission should look at rulings submitted from a business perspective to be perceived as business orientated.