New exit levy has credentials
By Jerome Davids *
[The Edge, 15-21 February, 1998; http://www.theedgedaily.com/]
[Web Editor’s Note: This article is provided for historical interest only: the remaining elements of the exit
levy applying to inward portfolio investment by non-residents were abolished in 2001. There are,
however, some remnants of the so-called capital controls first imposed in 1997, for example, the
requirement that outward investments by residents be first approved by the Central Bank.]
Since September of last year, the capital of foreign portfolio investors has been locked in the
country, unable to be repatriated until the lapse of a twelve-month holding period. After high-
profile talks with foreign fund managers, the Government has relaxed this restriction in favour
of a composite taxing mechanism designed to reduce the de-stabilizing economic effects of
massive inflows and outflows of short-term capital. The mass media has called this new
mechanism the exit levy.
The pivotal date for the new exit levy will be the Fifteenth of this month. For any portfolio
investment (including property investment) made by a non-resident before this date, the levy is
a transaction tax on the investment capital brought into, and subsequently repatriated from, the
country. The leviable amount is the liquidated proceeds of the original investment, excluding
any gain thereon, or dividends, interest or rentals earned from the investment. The levy rate
regresses from 30% of the leviable proceeds of investments held for seven months or less, to 0%,
for investments held more than twelve months.
For portfolio investments made by non-residents on or after 15 February, the levy becomes a tax
on the liquidated profits of an investment, apart from dividends, interest or rentals. The levy
rate is 30% on profits earned and held for twelve months or less, and 10% on profits earned and
held for more than twelve months. The original capital invested will not be subject to the levy.