What lies ahead for individuals?

GOVERNMENT is currently struggling to make ends meet and in the additional budget proposal the Minister of Finance last year stressed the fact that the depletion of income available is due mainly to the depletion of the corporate tax source during the past 12 to 18 months.

Corporate tax was a very inconsistent tax. The only fixed form of income the Ministry had available was that of individual income taxes.The question now arises: “What can we expect from the Ministry of Finance?” Some of the answers come from the NamTax Consortium that was set up by the Government to review the tax system in 2001.Its recommendations have not been implemented and observers are wondering which of them will appear in the budget speech this year? During the review of the current income tax system in Namibia by the Consortium in December 2002, they recommended various changes to the structures for taxing individuals.Method of Taxation – Salaries/Individuals The proposal is that a final withholding tax be introduced on individuals.The period of assessment will be monthly and not annually as it is at the moment.That would mean that at the end of each month a salaried taxpayer will pay PAYE and that would be final.No income tax returns will need to be submitted every year.This will lighten the burden of processing these returns on the Receiver of Revenue’s Office.Sounds very attractive because you do not have to worry about income tax returns and when they have to be submitted.There is, however, a downside to this.This method of taxation will mean that no further motor vehicle allowances, entertainment allowances and other creative allowances for use of personal assets for business purposes will be granted.You will not be able to claim expenses against these allowances in future.Such expenses will need to be claimed directly from your employer, where it is used for business purposes.The administrative burden of inspecting whether or not such expenses were actually incurred for business purposes will be transferred to the employers.Those of us that have weekend farming activities or rental activities for purpose of investment, which has created nice tax losses, will need to downsize these activities, if the intention was to create a tax loss since these losses will in future not be allowed against salary income.The monthly assessment process will ring-fence salary income.You may only claim such losses against non-salary income in future.It is also recommended that directors of private companies be included in the PAYE system and that they must pay PAYE monthly instead of being provisional taxpayers.Withholding Taxes on Interest The Receiver of Revenue believes that a lot of taxpayers do not disclose their interest income on their annual income tax returns.It is therefore proposed that a withholding tax of 10% be introduced on interest paid to taxpayers by financial institutions.This proposal will place an administrative burden on the systems of the financial institutions in order to manage the process of withholding and payment to the Receiver of Revenue.This withholding tax will be levied monthly and not annually.Unit Trust Distributions In terms of the Income Tax Act the distributions received by individuals from Unit Trusts are exempt from income tax since it is deemed to be dividends.The proposal has been submitted to discontinue this exemption and to implement the withholding tax on interest proposal mentioned above on Unit Trusts also.Taxation of Directors Fees, Bonuses, Leave Pay, other income (non-monthly) It has been proposed that income of such nature be taxed on a receipt basis and not on an accrual basis.Anti-avoidance provisions will be implemented to prevent creative minds from misusing these stipulations.Taxation of Study Policy proceeds Inland Revenue is experiencing problems with ascertaining if the policy proceeds received have been applied for study purposes and not for other purposes.It is recommended that these proceeds be taxed in full on date of receipt.A deduction can then be claimed against such receipt by submitting proof of payment to an educational institution.It is again proposed that withholding tax should be paid on these proceeds and that the financial institution paying the proceeds will be responsible for the tax deduction and payment to Inland Revenue.Conclusion The future for individuals is not so rosy as for other taxpayers, but there is no reason for negativity.None of these proposals have been implemented to date.We as individuals have been very privileged for many years in that we paid fairly little tax and certain taxpayers paid nothing.The honeymoon is over.We have to upgrade our system to be internationally compliant and in line with the international trends.This way all will pay tax equally and not only certain duly registered taxpayers with a conscience as a taxpaying mind.”This article is provided by PricewaterhouseCoopers for information only, and does not constitute the provision of professional advice of any kind.The information provided herein should not be used as a substitute for consultation with professional advisers.Before making any decision or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation.No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.”Copyright (c) 2004 PricewaterhouseCoopers.All rights reserved.The only fixed form of income the Ministry had available was that of individual income taxes.The question now arises: “What can we expect from the Ministry of Finance?” Some of the answers come from the NamTax Consortium that was set up by the Government to review the tax system in 2001.Its recommendations have not been implemented and observers are wondering which of them will appear in the budget speech this year? During the review of the current income tax system in Namibia by the Consortium in December 2002, they recommended various changes to the structures for taxing individuals. Method of Taxation – Salaries/Individuals The proposal is that a final withholding tax be introduced on individuals.The period of assessment will be monthly and not annually as it is at the moment.That would mean that at the end of each month a salaried taxpayer will pay PAYE and that would be final.No income tax returns will need to be submitted every year.This will lighten the burden of processing these returns on the Receiver of Revenue’s Office.Sounds very attractive because you do not have to worry about income tax returns and when they have to be submitted.There is, however, a downside to this.This method of taxation will mean that no further motor vehicle allowances, entertainment allowances and other creative allowances for use of personal assets for business purposes will be granted.You will not be able to claim expenses against these allowances in future.Such expenses will need to be claimed directly from your employer, where it is used for business purposes.The administrative burden of inspecting whether or not such expenses were actually incurred for business purposes will be transferred to the employers.Those of us that have weekend farming activities or rental activities for purpose of investment, which has created nice tax losses, will need to downsize these activities, if the intention was to create a tax loss since these losses will in future not be allowed against salary income.The monthly assessment process will ring-fence salary income.You may only claim such losses against non-salary income in future.It is also recommended that directors of private companies be included in the PAYE system and that they must pay PAYE monthly instead of being provisional taxpayers.Withholding Taxes on Interest The Receiver of Revenue believes that a lot of taxpayers do not disclose their interest income on their annual income tax returns.It is therefore proposed that a withholding tax of 10% be introduced on interest paid to taxpayers by fi
nancial institutions.This proposal will place an administrative burden on the systems of the financial institutions in order to manage the process of withholding and payment to the Receiver of Revenue.This withholding tax will be levied monthly and not annually.Unit Trust Distributions In terms of the Income Tax Act the distributions received by individuals from Unit Trusts are exempt from income tax since it is deemed to be dividends.The proposal has been submitted to discontinue this exemption and to implement the withholding tax on interest proposal mentioned above on Unit Trusts also.Taxation of Directors Fees, Bonuses, Leave Pay, other income (non-monthly) It has been proposed that income of such nature be taxed on a receipt basis and not on an accrual basis.Anti-avoidance provisions will be implemented to prevent creative minds from misusing these stipulations.Taxation of Study Policy proceeds Inland Revenue is experiencing problems with ascertaining if the policy proceeds received have been applied for study purposes and not for other purposes.It is recommended that these proceeds be taxed in full on date of receipt.A deduction can then be claimed against such receipt by submitting proof of payment to an educational institution.It is again proposed that withholding tax should be paid on these proceeds and that the financial institution paying the proceeds will be responsible for the tax deduction and payment to Inland Revenue.Conclusion The future for individuals is not so rosy as for other taxpayers, but there is no reason for negativity.None of these proposals have been implemented to date.We as individuals have been very privileged for many years in that we paid fairly little tax and certain taxpayers paid nothing.The honeymoon is over.We have to upgrade our system to be internationally compliant and in line with the international trends.This way all will pay tax equally and not only certain duly registered taxpayers with a conscience as a taxpaying mind.”This article is provided by PricewaterhouseCoopers for information only, and does not constitute the provision of professional advice of any kind.The information provided herein should not be used as a substitute for consultation with professional advisers.Before making any decision or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation.No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.”Copyright (c) 2004 PricewaterhouseCoopers.All rights reserved.