Effective tax policy should always reflect economic realities within a State. Meaning that tax should be regularly updated by both code and practice as well as administratively as the economy swings about.
Taxation principles, however, should remain constant to preserve the certainty investments principle.
These regular updates should be applicable to both company and personal taxes and also other indirect taxes such as social security, transfer duty, stamp duties, export levies and royalties levied on minerals.
During boom years, taxes should be high, and when the economy dwindles, taxes should be relaxed to allow for recovery. This is normal fiscal policy, nothing new. Its practice, therefore, should still be encouraged.
Namibia is rich, or so it is said, in mineral deposit. It should therefore be normal that when mineral prices are good, fair royalties should be recovered, and when they have dropped, royalties should also be relaxed. This will help keep many mines alive, and not always enter maintenance.
From the recently tabled N$100-billion budget by the Minister of Finance and Public Enterprises, Iipumbu Shiimi, the Namibia Revenue Agency has about N$17 billion in arrears in terms of uncollected taxes. Why is this the case? It could be pure evasion, but one can also argue that it was just not possible to pay such taxes over the previous years, under such an economic climate.
Could this also be the reason why the Treasury is writing off N$1.4 billion in taxes that it is owed by public enterprises? Is it really that they did not want to pay or the economy just couldn’t allow them to pay?
Now, although the budget is solid, Namibians are pointing fingers that the many pro-growth tax policies that were announced this week by the Minister are a mere political campaign because it is an election year. If it were that they were attended to gradually, such would not be the case.
While it might just be easy to say, updating tax tables annually requires obtaining and maintaining market intelligence across the board to propose appropriate tax tables. Businesses do this all the time. They gather appropriate intelligence to ensure they are at par or within reasonable bounds of the competitive prices – and there is nothing stopping treasury from this.
If the tax tables are annually updated, Namibia will join the likes of South Africa, Botswana, China and even the USA, that not only update tax tables during budget times, but also whenever there is a major happening in an economy.
During Covid-19, drought years, supply chain challenges, the above-mentioned and many countries updated their tax codes, providing relief for companies and individuals, and aiding them to stay afloat. This is a worthy cause to drum into the Treasury.
Namibia has a high unemployment rate, elevated inflation and interest rates that have pushed many into a corner as it concerns the cost of living. But if regularly updated, personal income tax tables for example have the potential to reduce unnecessary strikes for there will always be some sort of relief every year for the workforce.
When adjusted, inflation is factored in, and that can reduce the impact of the ever-rising cost of living in the country. This will be helpful, even if the private sector or the government and its agencies do not increase the workers’ salaries.
Finance Minister this week was truly Father Christmas, as labelled by some. The new tax tables as released with the 2024/25 budget speech have pushed up the threshold of income tax for individuals from N$50,000 to N$100,000.
This increase is necessary and is reflective of how wages have grown, though it also has an inflation element to it. The Minister indicated that the rest of the rates will be adjusted for inflation, during the next two years, but I would suggest that it be done annually.
Like the Minister said, the recent tax policy proposals will provide some relief to taxpayers with the aim to boost domestic demand and broaden the tax base to improve revenue mobilisation. But this should be every year, and at every major economic event.
The reduction of corporate tax for non-mining companies to 31% effective this year is a good move. But it should be across the board. What about mining companies? The last time the non-diamond mining company rate was revised was 2007. This was 17 years ago. Surely circumstances have changed, and now we should, even in tax policy, reflect those changes.
Another key policy announcement proposed was the transfer duty threshold to N$1 million. At this ceiling, Namibia is almost at par with South Africa which is at N$1.1 million. This is good, but also needs to be updated regularly factoring in affordability as well as the demand and need for housing.
The replacement of the never applied thin capitalisation rules to a 30% interest limitation is also a good move. It is known that capital mainly comes into Namibia by debt, and profits leave by excessive interest and management fees. It is good to see the interest part covered. Market intelligence would have indicated that there was a need to also attend to management and professional fees.
A withholding tax on dividends for equality is good, though it has created enmity between treasury and the asset management industry. It is good for it has brought Namibia in line with its SADC peers.
The VAT threshold that got upped to N$1 million is good, an administrative bonus to be honest. The 23,000 SMEs now have an opportunity to grow.
In the entire budget, the extra deduction for internship allowance is the best one. Monitoring and evaluation on how effective this is should be strategised.
The point of all of this is, it took about 10 years for the Treasury to update tax tables for personal income tax, 10 years to update transfer duty rates and 13 years to update allowable pension fund contribution deductions. This is definitely not the best way to be an active participant as the Treasury, and it definitely can be better.
*Lazarus Amukeshe is a tax and accounting professional. All views are his own and not that of his employer or affiliates.
