Tax Talk

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

THE South African Minister of Finance delivered his 2007/08 budget speech last week. There was some tax relief for individuals.This relief has been possible as a result of amendments to the tax legislation over time to acknowledge that the times have changed and a significant improvement in tax compliance by South African taxpayers.There is a sense that the tax collection in Namibia has also improved since the Minister of Finance introduced audit procedures to ensure that refunds to taxpayers are authentic and valid.It will be interesting to see if our Minister of Finance is able to pass on some benefit to the taxpayers of this country.All individuals in Namibia pays no income tax on the first N$24 000 of income.In South Africa the threshold for individuals under 65 is the equivalent of N$43 000 and if you are 65 or older the threshold before you pay tax is the equivalent of N$69 000.South African individuals therefore enjoy a significant tax advantage over us.The first N$500 of interest earned by a Namibian individual from a Namibian financial institution is exempt from income tax.In South Africa the first N$18 000 of interest earned is exempt from income tax if you are under 65 and the tax exempt interest amount is N$26 000 for those 65 years and older.The N$500 exemption threshold has been set at this level for many years and is really irrelevant for most taxpayers.The Minister of Finance has announced that a withholding tax on interest will be imposed.This measure seems to be very punitive on individuals who don’t earn significant interest income.A more practical approach would have been to increase the exemption threshold substantially to cut down on the effort of policing the declaration of interest and enforcing the provisions of section 59(1)(e) of the Income Tax Act where the payer of the interest must advise the Receiver of Revenue of interest paid to investors.Tax-deductible retirement contributions in Namibia are limited to N$30 000 for the tax year.In South Africa the tax-deductible contribution is linked to a fixed percentage that is applied to income the taxpayer earns.This provision is in line with the rules of retirement funds that require members to contribute a fixed percentage of remuneration.Our Income Tax Act has not kept pace with this change and limiting the tax-deductible contributions to a monetary value is very punitive.Individual taxpayers in Namibia cannot deduct any medical aid expenses to calculate taxable income.South Africa has acknowledged that medical expenses are a significant cost for any household and therefore allows taxpayers to reduce taxable income by a fixed amount per dependant in addition to allowing other medical expenses depending on the taxpayer’s level of income.In recent times medical expenses have increased significantly for all of us but in Namibia we have not been afforded similar benefits to South African taxpayers.The taxation of fringe benefits in South Africa has also been simplified significantly so that less effort is required by the Revenue Authority on policing compliance by taxpayers.The policing of our fringe benefits is extremely cumbersome and requires a lot of effort by all and sundry to ensure the fiscus receives its fair share of taxes on this category of income received by individuals.All in all it seems that individuals in South Africa are receiving a much fairer deal under their Income Tax Act compared to us.The compliance culture in South Africa is better than here because the Revenue Authority is enforcing the law more effectively and therefore the South African Minister of Finance is in a position to pass some benefits back to all taxpayers.If our compliance culture improves voluntarily, our Minister may just have the luxury that her South African counterpart has, which could benefit the majority of us.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.There was some tax relief for individuals.This relief has been possible as a result of amendments to the tax legislation over time to acknowledge that the times have changed and a significant improvement in tax compliance by South African taxpayers.There is a sense that the tax collection in Namibia has also improved since the Minister of Finance introduced audit procedures to ensure that refunds to taxpayers are authentic and valid.It will be interesting to see if our Minister of Finance is able to pass on some benefit to the taxpayers of this country.All individuals in Namibia pays no income tax on the first N$24 000 of income.In South Africa the threshold for individuals under 65 is the equivalent of N$43 000 and if you are 65 or older the threshold before you pay tax is the equivalent of N$69 000.South African individuals therefore enjoy a significant tax advantage over us.The first N$500 of interest earned by a Namibian individual from a Namibian financial institution is exempt from income tax.In South Africa the first N$18 000 of interest earned is exempt from income tax if you are under 65 and the tax exempt interest amount is N$26 000 for those 65 years and older.The N$500 exemption threshold has been set at this level for many years and is really irrelevant for most taxpayers.The Minister of Finance has announced that a withholding tax on interest will be imposed.This measure seems to be very punitive on individuals who don’t earn significant interest income.A more practical approach would have been to increase the exemption threshold substantially to cut down on the effort of policing the declaration of interest and enforcing the provisions of section 59(1)(e) of the Income Tax Act where the payer of the interest must advise the Receiver of Revenue of interest paid to investors.Tax-deductible retirement contributions in Namibia are limited to N$30 000 for the tax year.In South Africa the tax-deductible contribution is linked to a fixed percentage that is applied to income the taxpayer earns.This provision is in line with the rules of retirement funds that require members to contribute a fixed percentage of remuneration.Our Income Tax Act has not kept pace with this change and limiting the tax-deductible contributions to a monetary value is very punitive.Individual taxpayers in Namibia cannot deduct any medical aid expenses to calculate taxable income.South Africa has acknowledged that medical expenses are a significant cost for any household and therefore allows taxpayers to reduce taxable income by a fixed amount per dependant in addition to allowing other medical expenses depending on the taxpayer’s level of income.In recent times medical expenses have increased significantly for all of us but in Namibia we have not been afforded similar benefits to South African taxpayers.The taxation of fringe benefits in South Africa has also been simplified significantly so that less effort is required by the Revenue Authority on policing compliance by taxpayers.The policing of our fringe benefits is extremely cumbersome and requires a lot of effort by all and sundry to ensure the fiscus receives its fair share of taxes on this category of income received by individuals.All in all it seems that individuals in South Africa are receiving a much fairer deal under their Income Tax Act compared to us.The compliance culture in South Africa is better than here because the Revenue Authority is enforcing the law more effectively and therefore the South African Minister of Finance is in a position to pass some benefits back to all taxpayers.If our compliance culture improves voluntarily, our Minister may just have the luxury that her South African counterpart has, which could benefit the majority of us.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.