Tax Talk

Tax saving at least N$2 100 for many 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 proposed a reduction in the tax rates payable in her budget speech on March 15 2007. The only details she provided to date was that the minimum threshold before tax is payable increases from N$24 000 per year to N$36 000 per year.The tax rate applicable to this level income is 17,5 per cent, and the raise in the threshold means all of us that earn at least N$36 000 a year will pay N$2 100 less in tax during the coming year.In addition to this, the Minister of Finance also proposed that the tax-deductible contribution to approved retirement funds and educational policies will be increased to N$40 000 per year.The proposed changes in the Income Tax Act noted above are not effective yet but it is expected that the changes will be effective from March 1 2007 albeit that the National Assembly will only approve the amendments later this year.You should not be applying the proposed changes in determining the monthly PAYE deduction of employees until such time as the National Assembly has approved the changes recommended by the Minister of Finance.Paragraph 9 of Schedule 2 to the Income Tax Act makes it abundantly clear that the tax tables prescribed by the Minister of Finance to be used to determine how much PAYE must be withheld from the remuneration of employees only come into force on the date they are published in the Government Gazette and the tables remain in force until such time as they are withdrawn by the Minister of Finance.Even if the change is retrospectively applicable from March 1 2007, the amended tables are not available yet and cannot be used until they are gazetted.The same applies for the proposed increase in the tax-deductible contributions to approved retirement funds and educational polices for dependents.Currently section 17(2) of the Income Tax Act caps the deduction at N$30 000 per tax year.Once the National Assembly approves the increase to N$40 000 and the change is gazetted, it can be taken into account in calculating the PAYE amount to be paid over to the Receiver of Revenue.Although both the proposed changes are very welcome, I am of the view that the Minister’s proposals did not go far enough to alleviate the plight of the poor.The amendment in the tax rate benefits many of us but the income earners on the lower end of the scale should have benefited more if the tax system was equitable to all.It is so that the percentage benefit of the proposed change for the lower-income earners is much higher than that for higher-income earners but it does not put money into pockets of the lower-income earners.My view of the monetary threshold for tax-deductible contributions is clear – if the rules of an approved pension fund require the member to contribute 7,5 per cent of pensionable earnings to the fund the full contribution should be allowed as a tax deduction.After all, when the pension is paid out one day, the annuity is taxed as normal income.It just does not seem to be fair that the taxpayer loses the benefit of the excess contribution over the tax allowable contribution but the full pension is part of the taxpayer’s taxable income.In similar circumstances other countries have legislated for a deduction on the excess contribution that is not allowable in the year the contributions are made.Most of us could have got a better deal from the proposed amendments.If tax collections continue to improve as it has over the past two years, the Minister if Finance may just have the luxury to pass it on to us.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.The only details she provided to date was that the minimum threshold before tax is payable increases from N$24 000 per year to N$36 000 per year.The tax rate applicable to this level income is 17,5 per cent, and the raise in the threshold means all of us that earn at least N$36 000 a year will pay N$2 100 less in tax during the coming year.In addition to this, the Minister of Finance also proposed that the tax-deductible contribution to approved retirement funds and educational policies will be increased to N$40 000 per year. The proposed changes in the Income Tax Act noted above are not effective yet but it is expected that the changes will be effective from March 1 2007 albeit that the National Assembly will only approve the amendments later this year.You should not be applying the proposed changes in determining the monthly PAYE deduction of employees until such time as the National Assembly has approved the changes recommended by the Minister of Finance.Paragraph 9 of Schedule 2 to the Income Tax Act makes it abundantly clear that the tax tables prescribed by the Minister of Finance to be used to determine how much PAYE must be withheld from the remuneration of employees only come into force on the date they are published in the Government Gazette and the tables remain in force until such time as they are withdrawn by the Minister of Finance.Even if the change is retrospectively applicable from March 1 2007, the amended tables are not available yet and cannot be used until they are gazetted.The same applies for the proposed increase in the tax-deductible contributions to approved retirement funds and educational polices for dependents.Currently section 17(2) of the Income Tax Act caps the deduction at N$30 000 per tax year.Once the National Assembly approves the increase to N$40 000 and the change is gazetted, it can be taken into account in calculating the PAYE amount to be paid over to the Receiver of Revenue.Although both the proposed changes are very welcome, I am of the view that the Minister’s proposals did not go far enough to alleviate the plight of the poor.The amendment in the tax rate benefits many of us but the income earners on the lower end of the scale should have benefited more if the tax system was equitable to all.It is so that the percentage benefit of the proposed change for the lower-income earners is much higher than that for higher-income earners but it does not put money into pockets of the lower-income earners.My view of the monetary threshold for tax-deductible contributions is clear – if the rules of an approved pension fund require the member to contribute 7,5 per cent of pensionable earnings to the fund the full contribution should be allowed as a tax deduction.After all, when the pension is paid out one day, the annuity is taxed as normal income.It just does not seem to be fair that the taxpayer loses the benefit of the excess contribution over the tax allowable contribution but the full pension is part of the taxpayer’s taxable income.In similar circumstances other countries have legislated for a deduction on the excess contribution that is not allowable in the year the contributions are made.Most of us could have got a better deal from the proposed amendments.If tax collections continue to improve as it has over the past two years, the Minister if Finance may just have the luxury to pass it on to us.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.