The new ‘Withholding Tax’ is definitely a blow to the new and emerging companies which constantly fail to thrive in this tough economy.
Small companies that survive on imports of goods not essentially manufactured in Namibia will, by the end of 2013, most likely close down due to the exorbitant taxation the Government continues to impose without proper consultations with the SME business sector.
Take for example Company X importing products from South Africa to Namibia for business. Company X has to calculate all necessary taxes and its own mark-up plus transport of a product before it embarks on the business.
If Company X imports an ordinary television set to resell in Namibia costing R1 000 from Wholesaler Y in South Africa, the new Withholding Tax requires that Company X withhold 25 per cent tax from the R1 000 that Wholesaler Y requires for this TV set.
The wholesaler located in South Africa will most likely not release the TV until Company X had paid the full amount of R1 000. It will not accept a price of R750 for that product and will not allow adjusting its price to R1 250 on its invoice due to the implications this will have on tax books of that country’s tax regime. Now let’s say Company X decides to purchase that TV at R1 000, then the company is liable to pay Inland Revenue 25 per cent of that amount which is N$250. If the TV is then shipped to Namibia, it will have the following costs for this product:
Actual TV Cost = R1000
Import VAT 16 per cent = N$160,
Withholding tax 25 per cent = N$250,
Transport (if consolidated) = N$250 (estimate), and thus total cost could be = N$1660. Then add a mark-up of 35 per cent = N$581 and the selling price comes to N$2241, plus
VAT of 15 per cent = N$336.15 that will come to a final selling price to the customer = N$2577.15.
This selling price is clearly two and half times the actual cost price. This is what makes Namibia one of the most expensive countries in southern Africa (second to Angola). It definitely kills small companies and SMEs.
This Company X will still need to pay income tax of 32 per cent, less the expenses from the mark-up amount.
Now look at the tax Inland Revenue gets from just this TV set costing R1000:
Import VAT 15 per cent = N$160;
Withholding tax 25 per cent = N$250
VAT 15 per cent = N$336.15; thus total tax = N$746.15.
Let’s say the TV is coming from the United Kingdom, you just add customs duty of between 18 – 36 per cent to the final selling price plus a little transport costs!
The point here is that if Namibia does not manufacture such products it must not impose exorbitant taxes on those products, because there is no market to protect here which manufactures TVs, cell phones and most electronic products. Only VAT will be appropriate to put on these items.
This will have a negative impact on the economy because small companies will close down and less tax will come to Inland Revenue and more unemployment looms.
The Minister of Finance must therefore sit with the Minister of Trade as well as the SMEs and discuss implications of this tax before things get worse.
Via the website