Will we see Capital Tax in Namibia?

A tax widely debated, especially after the bold implementation thereof in South Africa, is Capital Gain Tax.

Are we going to see the introduction of Capital Gain Tax in Namibia? Capital Gain Tax is more than just the taxation of capital profits on sale of shares and properties. In order to gain a better understanding of “capital” one needs to refer to the definition as set by the courts being “if we take the economic meaning of “capital” and “income,” the one excludes the other.”Income” is what “capital” produces, or is something in the nature of interest or fruit as opposed to principal or tree.In this article we will refer to various capital taxes proposed by the Namibian Tax Consortium (2002) and discuss the principals thereof and discuss anomalies in the current legislation.Proposed taxes on capital In general the proposal by the Consortium was that certain individual kinds of capital taxes have been proposed for implementation as soon as possible, as listed below.Estate DutyA proposal was submitted to introduce estate duty of between 20% and 25% on the excess of the estate over a primary abatement of between N$1,5 million and N$2 million.This taxation can be better defined as a tax on transfer of wealth.Estate duty is envisaged as being easily implemented since all estates is required to be presented to the Master of the High Court before finalisation and in the process assessments for estate duty can be issued.Donations TaxA proposal was submitted to introduce donation tax of between 20% and 25% on the value of the donation.This taxation can also be defined as a tax on transfer of wealth.Donations tax is envisaged as a protection tool to limit estate-planning methods used.In order for donations tax to be implemented the Receiver of Revenue must be able to controls the transfer of assets between different taxpayers.Sale of properties and farmsIt has been proposed that such sales be subjected to income tax for all taxpayers, subject to a holding period, which is proposed to be two years.This means that you must keep an investment property for longer than two years otherwise the profit will be subject to normal income tax.An abatement is proposed for the “primary residence” of a taxpayer, his own home.It is proposed that any sale of farmland be subjected to income tax.The definition of “farmland” in this regard will be very important.Implementation of Taxes on CapitalThe introduction of Donations Tax and special deemed Capital Profits is envisaged to be implemented during the 2004/2005 year of assessment and Estate Duty during the 2005/2006 year of assessment.No indication of implementation dates have been received.All we can do now is wait in anticipation.Current legislative anomaliesRecoupment of Building Allowance Currently a taxpayer is allowed to claim 20% of the cost of the erection of a building in the year of erection and 4% of the cost of the erection for the next 20 years.If one should sell the building then the building allowance claimed, until the date of sale, will be taxable.If the buyer of the building is fortunate enough then he will be able to obtain the original cost of the building and will be able to claim only the 4% allowance for the remaining years, but only on the original cost of erection.He will never be able to claim the 20% allowance since this is only available to the taxpayer erecting the building.We propose that this anomaly be rectified by allowing the buyer to claim his purchase price over a period of 20 years in total, 5% per annum.Investment in existing property as opposed to erection of property should not be discouraged in this manner.Investment in existing property and creation of jobs through that must also be promoted.Conclusion The administrative burden created by these new taxes must be managed and planned in great detail to enable the offices of Inland Revenue to adhere to their Mission Statement of providing efficient service.This administrative burden may be lightened by implementing the various assessment period changes as discussed in the article containing changes to tax on individuals.”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.”Hennie Gous is a Accountant (Namibia) and is responsible for the Corporate Tax Division of PricewaterhouseCoopers Namibia.He has experience in various tax, accounting and auditing fields and industries.In order to gain a better understanding of “capital” one needs to refer to the definition as set by the courts being “if we take the economic meaning of “capital” and “income,” the one excludes the other.”Income” is what “capital” produces, or is something in the nature of interest or fruit as opposed to principal or tree.In this article we will refer to various capital taxes proposed by the Namibian Tax Consortium (2002) and discuss the principals thereof and discuss anomalies in the current legislation.Proposed taxes on capital In general the proposal by the Consortium was that certain individual kinds of capital taxes have been proposed for implementation as soon as possible, as listed below.Estate DutyA proposal was submitted to introduce estate duty of between 20% and 25% on the excess of the estate over a primary abatement of between N$1,5 million and N$2 million.This taxation can be better defined as a tax on transfer of wealth.Estate duty is envisaged as being easily implemented since all estates is required to be presented to the Master of the High Court before finalisation and in the process assessments for estate duty can be issued.Donations TaxA proposal was submitted to introduce donation tax of between 20% and 25% on the value of the donation.This taxation can also be defined as a tax on transfer of wealth.Donations tax is envisaged as a protection tool to limit estate-planning methods used.In order for donations tax to be implemented the Receiver of Revenue must be able to controls the transfer of assets between different taxpayers.Sale of properties and farmsIt has been proposed that such sales be subjected to income tax for all taxpayers, subject to a holding period, which is proposed to be two years.This means that you must keep an investment property for longer than two years otherwise the profit will be subject to normal income tax.An abatement is proposed for the “primary residence” of a taxpayer, his own home.It is proposed that any sale of farmland be subjected to income tax.The definition of “farmland” in this regard will be very important.Implementation of Taxes on CapitalThe introduction of Donations Tax and special deemed Capital Profits is envisaged to be implemented during the 2004/2005 year of assessment and Estate Duty during the 2005/2006 year of assessment.No indication of implementation dates have been received.All we can do now is wait in anticipation.Current legislative anomaliesRecoupment of Building Allowance Currently a taxpayer is allowed to claim 20% of the cost of the erection of a building in the year of erection and 4% of the cost of the erection for the next 20 years.If one should sell the building then the building allowance claimed, until the date of sale, will be taxable.If the buyer of the building is fortunate enough then he will be able to obtain the original cost of the building and will be able to claim only the 4% allowance for the remaining years, but only on the original cost of erection.He will never be able to claim the 20% allowance since this is only available to the taxpayer erecting the building.We propose that this anomaly be rectified by allowing the buyer to claim his purchase pr
ice over a period of 20 years in total, 5% per annum.Investment in existing property as opposed to erection of property should not be discouraged in this manner.Investment in existing property and creation of jobs through that must also be promoted.Conclusion The administrative burden created by these new taxes must be managed and planned in great detail to enable the offices of Inland Revenue to adhere to their Mission Statement of providing efficient service.This administrative burden may be lightened by implementing the various assessment period changes as discussed in the article containing changes to tax on individuals.”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.”Hennie Gous is a Accountant (Namibia) and is responsible for the Corporate Tax Division of PricewaterhouseCoopers Namibia.He has experience in various tax, accounting and auditing fields and industries.