2008/09 tax proposals disappointing

In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

THE Minister of Finance presented her budget speech in the National Assembly on March 5, which contained no new tax proposals. The fact that no new tax proposals have been made by the Minister at this early stage was very disappointing.Against the backdrop of improved revenue collection as a result of the tax audits that have been conducted and with the promise of extending the audits in the Windhoek region and to the rest of the country, raising the taxable income threshold from N$36 000 to something like N$40 000 (at least) would have been a welcome relief for the majority of Namibians.It is assumed that the tax tables currently in use will remain unchanged for the current tax year on the basis that the Minister made no mentioned of tax relief for individuals.The only logical explanation for leaving the tax tables as they are is the decline in Government revenue from the Southern African Customs Union.It would make no sense to decrease the tax rates now just to increase them later again because of the decline in revenue from the Customs Union.Namibia’s corporate tax rate is currently 35 per cent and there appears to be no intention to reduce the rate during the current tax year.This rate is very high compared to Botswana’s effective tax rate of 25 per cent and South Africa’s 28 per cent (reduced from 29 per cent in the most recent budget).From tax rate perspective anybody would identify the country where they would least like to business between the three aforementioned countries without any difficulty.Together with our decline in ranking as an investment destination, prospects to attract foreign investors look bleak.The Minister of Finance intimated in budget speech that her Ministry had been evaluating avenues of broadening the tax base.The tax audits results were an example of this referred to by the Minister.Although it makes perfect sense that the tax base must be broadened, what is of concern is the many people who are earning income from rendering services or selling goods in Namibia who escape the Namibian tax act because they reside outside the country.Namibia has a sourced based tax system, which really implies that you pay your tax here if you earn your income here.Currently many foreigners earning income in Namibia escape the local tax net and properly their taxes in their home countries.The other example that the Minister of Finance referred to was the introduction of the withholding tax on interest.While it is probably correct that the introduction of the withholding tax on interest is additional revenue for the Fiscus, it is a pity that such a cumbersome collection method has been put in place to collect the tax.Us as customers of the banking institutions will end up paying for the costs to implement the system through our bank charges.The consequence of this is that the ones in the tax system carry a proportionately heavier tax burden than those who are not in the system.This causes a downward spiral in the tax morality of those in the system, which is not good for the country.The Minister has some powerful provisions that already exist in the legislation which can easily enable her to broaden the tax base.The payback on effectively applying these provisions will be huge at a relatively low cost.If she succeeds in this, there will be enough additional revenue to warrant a decrease in the tax rates for all of us.With the broadened tax base, the decrease in tax rates could be meaningful for many of us.Let us wait and see what happens in the next twelve months with revenue collection.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.The fact that no new tax proposals have been made by the Minister at this early stage was very disappointing.Against the backdrop of improved revenue collection as a result of the tax audits that have been conducted and with the promise of extending the audits in the Windhoek region and to the rest of the country, raising the taxable income threshold from N$36 000 to something like N$40 000 (at least) would have been a welcome relief for the majority of Namibians.It is assumed that the tax tables currently in use will remain unchanged for the current tax year on the basis that the Minister made no mentioned of tax relief for individuals.The only logical explanation for leaving the tax tables as they are is the decline in Government revenue from the Southern African Customs Union.It would make no sense to decrease the tax rates now just to increase them later again because of the decline in revenue from the Customs Union.Namibia’s corporate tax rate is currently 35 per cent and there appears to be no intention to reduce the rate during the current tax year.This rate is very high compared to Botswana’s effective tax rate of 25 per cent and South Africa’s 28 per cent (reduced from 29 per cent in the most recent budget).From tax rate perspective anybody would identify the country where they would least like to business between the three aforementioned countries without any difficulty.Together with our decline in ranking as an investment destination, prospects to attract foreign investors look bleak.The Minister of Finance intimated in budget speech that her Ministry had been evaluating avenues of broadening the tax base.The tax audits results were an example of this referred to by the Minister.Although it makes perfect sense that the tax base must be broadened, what is of concern is the many people who are earning income from rendering services or selling goods in Namibia who escape the Namibian tax act because they reside outside the country.Namibia has a sourced based tax system, which really implies that you pay your tax here if you earn your income here.Currently many foreigners earning income in Namibia escape the local tax net and properly their taxes in their home countries.The other example that the Minister of Finance referred to was the introduction of the withholding tax on interest.While it is probably correct that the introduction of the withholding tax on interest is additional revenue for the Fiscus, it is a pity that such a cumbersome collection method has been put in place to collect the tax.Us as customers of the banking institutions will end up paying for the costs to implement the system through our bank charges.The consequence of this is that the ones in the tax system carry a proportionately heavier tax burden than those who are not in the system.This causes a downward spiral in the tax morality of those in the system, which is not good for the country.The Minister has some powerful provisions that already exist in the legislation which can easily enable her to broaden the tax base.The payback on effectively applying these provisions will be huge at a relatively low cost.If she succeeds in this, there will be enough additional revenue to warrant a decrease in the tax rates for all of us.With the broadened tax base, the decrease in tax rates could be meaningful for many of us.Let us wait and see what happens in the next twelve months with revenue collection.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.