Review of the Revenue Sharing Arrangement
The SACU Revenue Sharing Formula was implemented for the first time in December 2004 to calculate 2005/06 revenue shares for Member States. In practice, Member States' annual revenue shares are determined and approved by Council in December for distribution during the subsequent year.
The current Revenue Sharing Formula has three components; namely the Customs Component, Excise Component and the Development Component. The Customs share is allocated on the basis of each country's share of intra-SACU imports. The Excise Component is allocated on the basis of each country's share of Gross Domestic Product (GDP). The Development Component, which is fixed at 15 percent of total excise revenue, and is distributed according to the inverse of each country's GDP per capita.
The structure of the Revenue Sharing Formula is such that BLNS Member States get a significant share of their revenue from the Customs Component whilst South Africa gets more than 90 percent of its share from the Excise Component. The Development Component, whilst meant to compensate the least developed economies, is distributed more or less in equal shares among all the Member States. The implementation of the current Revenue Sharing Formula has a number of challenges, associated with the data that informs the variables in the formula. Furthermore, the recent global financial crisis has exposed some weaknesses in the structure of the Revenue Sharing Arrangement.
The process of the review of the revenue sharing arrangement has followed a three stage approach which entailed firstly, identification of areas requiring further study in the current revenue sharing arrangement; secondly, an independent examination of the identified areas; and thirdly, a process of negotiation to reach consensus on a new revenue sharing arrangement.
The following set of principles was set as a guide in the process of reviewing the revenue sharing arrangement:
- No Member State should be made worse off than what obtains under the current revenue sharing arrangement;
- Revenue shares should be equitable taking into account political, and socio-economic considerations amongst Member States;
- Revenue shares allocations should be developmental and not redistributive;
- The revenue sharing arrangement should promote economic convergence;
- The revenue sharing arrangement should minimise volatility and the pro-cyclical allocation of Member States' revenue shares; and
- The revenue sharing arrangement should be aligned to the SACU Vision and Mission.