– Tax Talk – Pressure for decrease in tax rate

In this series of articles, Cameron Kotz̩ Рthe Tax Partner at Ernst and Young Рdiscusses some topical tax issues for our readers.

BY the time we have our budget speech for 2006, both South Africa and Botswana would have had theirs. The outcome of their budget proposals for the coming year is putting pressure on our Minister of Finance to reduce the tax rates for individuals.The question is – can she reduce these tax rates? The maximum individual tax rate in Botswana is only 25%, which is 10% lower than our maximum rate.Their tax-free threshold has just been increased to about N$36 000 for the coming tax year.Although the top marginal rate in South Africa was not reduced (currently 40%) the tax bracket where this rate applies was increased from R300 000 to R400 000.This reduces the tax on R300 000 for the coming year by R5 737 (approximately R478 a month).The major benefit, however, is for the lower-income group, where South Africans under 65 earning less than R40 000 will not be liable for any income tax.South Africans over 65 can earn up to R65 000 without paying any income tax.This type of relief for the aged and the lower-income earners is significant.Namibia is lagging far behind compared to South Africa because the tax-free threshold is only N$24 000 for all citizens irrespective of age.The South Africans have another major tax benefit compared to us.Taxpayers under 65 can earn up to R16 500 interest without paying any tax on the interest earned.This effectively means this category of taxpayer can earn R56 500 a year without paying any income tax.In Namibia the tax on this income level will amount to N$7 667,50.For those over 65, the interest exemption for tax is now R24 500 and these taxpayers can therefore earn R89 500 without paying any income tax.In Namibia the tax on this income level will be N$17 877,50 – a significant difference! The Namibian interest exemption is only N$500 and has been at this level for many years.It is certainly time that the threshold of this exemption is reviewed and increased to something more substantial and meaningful.The South African Minister of Finance has passed on significant tax relief to the lower-income earners and the aged over last few years.We have not seen the same in Namibia and this must be putting pressure on our Minister of Finance.I do not believe that the Minister of Finance is in a position to grant significant tax relief to individual taxpayers when her budget proposals for 2006 are tabled.Due to the significant tax-compliance measures the South Africans have put in place, their tax collections have increased substantially.This has put the South African Minister of Finance in a position to pass on the tax-relief measures to individuals with the lower-income earners and aged benefiting the most.Similar tax-relief measures can only be introduced in Namibia if all of us pay the tax on our income that the Receiver of Revenue is entitled to.The Ministry of Finance has apparently collected significant more tax from the existing taxpayer base since it introduced external tax audits in 2005.The increased collections indicate that taxpayers are prepared to take their chances and planned tax evasion continues to be committed by many.Should you be guilty of planned tax evasion, you must understand the consequences this may have for you – some time in a Namibian prison.You cannot expect the tax authorities to condone planned tax evasion and if you are party to this, think it through again.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comThe outcome of their budget proposals for the coming year is putting pressure on our Minister of Finance to reduce the tax rates for individuals.The question is – can she reduce these tax rates? The maximum individual tax rate in Botswana is only 25%, which is 10% lower than our maximum rate.Their tax-free threshold has just been increased to about N$36 000 for the coming tax year.Although the top marginal rate in South Africa was not reduced (currently 40%) the tax bracket where this rate applies was increased from R300 000 to R400 000.This reduces the tax on R300 000 for the coming year by R5 737 (approximately R478 a month). The major benefit, however, is for the lower-income group, where South Africans under 65 earning less than R40 000 will not be liable for any income tax.South Africans over 65 can earn up to R65 000 without paying any income tax. This type of relief for the aged and the lower-income earners is significant.Namibia is lagging far behind compared to South Africa because the tax-free threshold is only N$24 000 for all citizens irrespective of age.The South Africans have another major tax benefit compared to us.Taxpayers under 65 can earn up to R16 500 interest without paying any tax on the interest earned.This effectively means this category of taxpayer can earn R56 500 a year without paying any income tax.In Namibia the tax on this income level will amount to N$7 667,50.For those over 65, the interest exemption for tax is now R24 500 and these taxpayers can therefore earn R89 500 without paying any income tax.In Namibia the tax on this income level will be N$17 877,50 – a significant difference! The Namibian interest exemption is only N$500 and has been at this level for many years.It is certainly time that the threshold of this exemption is reviewed and increased to something more substantial and meaningful.The South African Minister of Finance has passed on significant tax relief to the lower-income earners and the aged over last few years.We have not seen the same in Namibia and this must be putting pressure on our Minister of Finance. I do not believe that the Minister of Finance is in a position to grant significant tax relief to individual taxpayers when her budget proposals for 2006 are tabled.Due to the significant tax-compliance measures the South Africans have put in place, their tax collections have increased substantially.This has put the South African Minister of Finance in a position to pass on the tax-relief measures to individuals with the lower-income earners and aged benefiting the most.Similar tax-relief measures can only be introduced in Namibia if all of us pay the tax on our income that the Receiver of Revenue is entitled to.The Ministry of Finance has apparently collected significant more tax from the existing taxpayer base since it introduced external tax audits in 2005.The increased collections indicate that taxpayers are prepared to take their chances and planned tax evasion continues to be committed by many.Should you be guilty of planned tax evasion, you must understand the consequences this may have for you – some time in a Namibian prison.You cannot expect the tax authorities to condone planned tax evasion and if you are party to this, think it through again.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com