Red flags raised over GovtÔÇÖs tax propositions

Economic analyst and tax experts have raised red flags over the Government’s proposition to introduce a raft of taxes while revising others including abolishing of tax exemptions for foreign investors saying the move could backfire for treasury.
Currently some major conglomerates are enjoying tax holidays where they do not pay Value added taxes to Government as part of the incentives they were offered for a certain period upon their decision to come to Namibia.
Minister of Finance Calle Schlettwein told parliament in his medium term budget review that he will introduce taxes and also relook the idea of giving tax holidays to huge foreign investors to allow them to grow their operations and create employment.
“During the coming budget, it is my intention to table the following taxes: The tax proposal for the introduction of the presumptive tax on small units, proposals to eliminate various categories of tax exemptions, both of VAT and income taxes as well as tax deductibility of some of items not related to cost of production such as the resource rent, redesign the proposals for Solidarity Wealth Tax into a high income-based Wealth Tax, coupled with further expansion and strengthening the provisions of Capital Gains Tax” the Minister said.
Price Water House Coopers (PwC), Associate Director in Inland Tax Related Projects, Nelson Lucas, opined that the propositions by Government could be detrimental to small businesses’ survival.
“In terms of having sufficient cash flow to survive, (that) can have a flip side should these small businesses make these small contributions to the nation which would end up making good use of this money by building relevant infrastructure for these businesses to flourish for better,” he said.
He further said that, “It can possibly chase away possible investors, government can look at taxing high wealth network income earners on their salaries or assets they own’’.
Commenting on this bone of contention, economic analyst Dr. Omu Kakujaba said that the presumptive tax could be administratively expensive for Government to administer.
“The government will have an administrative nightmare, as they will have to presume what the income of SME’s are since they don’t have their financial statement to tax them based on that, thus making the implementation of this tax difficult,” he said.
Executive Director, Tax at Ernst &Young, Friedel Janse van Rensburg also added his voice to the issue saying Government needs to strike a delicate balance on survival o he companies and collecting more revenue.
“…Broadly speaking however it is our view that the presumptive tax may not only assist in ensuring that small business owners contribute to the Namibian fiscus, but also simplify and hopefully streamline their tax compliance obligations and level the playing field for those that have always complied and those that have not.  In our view the elimination of income tax and value-added tax exemptions should carefully be considered taking into account not only the additional taxes that will be collected but also the impact on the economy as a whole and Namibia’s relative competitiveness,” he said
He also argued that, “When considering the deductibility of expenses our view is that consistency with industry norms globally should be kept in mind as the deductibility of certain costs determine the viability of certain projects and investments.  Namibia’s competitiveness and ability to attract investment should in other words be kept in mind.”
According to him some of the taxes could put a strain on the household income.
“The proposed additional tax to be levied on individuals considered wealthy will put further strain on Namibian households’ disposable income.  Taking into account that these households already contribute most of Namibia’s tax revenues and the expected increased costs of living, further pressures on this group will not easily be absorbed.  People will have to cut back which will in turn directly and indirectly impact employment. As such, this may lead to unintended consequences as people will have less disposable income that in turn stimulates local businesses,” he added.