The government has extended the transitional period for manufacturers and companies under the Export Processing Zone (EPZ) and benefiting from tax incentives from one year to five years after successful negotiations with the European Union (EU).
The one-year transitional period was effected as a compromise by the government after Namibia was forced to repeal certain provisions of the Income Tax Act, 24 of 1981 that grant tax incentives and exemptions after they had been identified as harmful tax regimes by the EU.
Namibia had been listed as non-cooperative jurisdictions regarding tax matters and was only removed from the list due to its commitment to implement criteria set by the EU, which include the abolishment of tax incentives and exemptions provided for registered manufacturers and Export Processing Zone (EPZ) operators under the Income Tax Act and EPZ Act.
“The Ministry of Finance has successfully engaged the EU, upon which the transitional period has been prolonged to a period of five years. The process of engaging the EU took longer than expected,” Finance minister Iipumbu Shiimi said.
He said the transitional period of one year had posed a challenge for affected companies in terms of their preparedness to exit from the tax regime to a normal tax system.
“Affected companies argued that investment decisions were made based on these tax exemption offerings and removing them abruptly without allowing them reasonable time to transition into the tax net system threatens the viability of their businesses as going concern entities, hence they pleaded with the government to intervene and address their plight,” Shiimi.
“Not allowing affected companies a longer grandfathering period will harm their businesses and the economy at large. During this time of the COVID-19 pandemic which devastated the economy, we all must do what we can to assist businesses and jobs to survive the storm.”
The amendment of the Income Tax Act, which commenced on 31 December 2020, provides for a transitional arrangement for the current registered manufacturers to continue enjoying these benefits until 31 December 2021.
