The Bank of Namibia (BoN) has issued a stern warning to banks with operations in the country against profit shifting and transfer pricing practices, which are done via Service Level Agreements.
Profit shifting and transfer pricing are strategies used by large corporations to reduce taxes and boost profits, by adjusting the prices of goods, services, or intellectual property transferred between entities within the same corporation, often across different countries, with the aim of moving more profits to low-tax areas and lessen the tax load in high-tax regions.
BoN Governor Johannes !Gawaxab told a recent gathering of senior executives of banking institutions and conglomerate groups in Africa that the practice will not be entertained by the bank.
This comes amid support from the apex bank for the localisation of decision making by locally registered banks, majority owned by foreign banks and the passing of the Banking Institutions Act, which places a cap on foreign ownership of banking institutions.
“The new regime is predicated on embedding local decision-making in the best interest of the Namibian people, who have been loyal patrons of banks and have helped them thrive over the years as successful businesses,” !Gawaxab said at the gathering held to introduce BoN’s supervisory approach.
“In this regard, credit decisions and approvals should be done by persons the Bank of Namibia has authorised and found fit and proper locally. No credit decisions should be taken outside Namibia by persons neither authorized nor found as fit-and-proper by the Bank to run the affairs of a Namibian banking institution.”
The Governor also lamented the high banking fees and charges during the gathering, which he said have become a major concern, receiving public and parliamentary attention.
“The new Banking Institutions Act has also introduced a provision empowering the Minister of Finance and Public Enterprises to make regulations relating to fees and charges imposed by banking institutions on their customers. As standard practice, these regulations will be issued in consultation with the banking industry to ensure that financial stability is not compromised,” he said.
!Gawaxab cautioned that the banking sector needs to be responsive and transformed to avoid collision with Namibian society.
“Our financial system is on a proverbial fork road. Operating models that achieved success in the past, may not do so in the future. I believe this new regulatory and supervisory framework, the Bank, as regulator and supervisor, and the entire industry shall work in tandem to bring about a responsive and dynamic financial ecosystem that maximises shareholder value while serving the national interest,” he said.
Namibia’s banking sector is currently dominated by South African banks which hold significant shareholding in local operations, despite some being locally listed.
Last year, the Namibia Revenue Agency (NamRA) accused multinationals operating in Namibia of employing dirty tricks such as transfer pricing as well as illicit financial flows to take their huge profits running into billions out of Namibia.
The NamRA Commissioner and CEO, Sam Shivute noted that the tax collector had established a division to deal with the transfer pricing menace, with plans underway to empower and capacitate the unit.
