Tax bill targets churches, trusts
If the proposed amendments to the Income Tax Act that target churches sail through parliament, pastors must prepare to render to Caesar what belongs to Caesar.
The draft of the amendments seen by The Villager seeks to amend the Income Tax Act, 1981, particularly the definition of “gross income” concerning the specific inclusion of foreign income, to provide for particular taxation of trusts, and to phase out existing preferential treatment granted to only certain traders.
It also seeks to delete certain exemptions, limit losses carried forward to five years, introduce withholding tax on dividends paid to Namibian residents, provide for thin capitalisation rules, reduce the tax rates of low-income earners, provide for penalties for tax evasion and to provide for incidental matters.
The bill also gives power to the finance minister to withdraw the approval of any church institution that will not comply with provisions of the Act.
In March this year, finance minister Calle Schlettwein announced that as part of the tax policy changes, religious institutions would be required to register as taxpayers and file annual income tax returns.
The draft amendments state that business income of a church would be taxed as a company and that no person should benefit from church funds in any way and any manner whatsoever as to profit directly or indirectly.
Speaking to The Villager just after Schlettwein's announcement in March, the Council of Churches in Namibia secretary general Ludwig Beukes said the state should have consulted with the church and found common ground first before subjecting it to tax payments.
“For us as a church, it was shocking because there was no consultation before from government to say we are thinking in such a direction. Whether they have done any survey to come to that kind of things, this is the information we would like to hear. We are still waiting to get more detail to say now when they talk about this, from what threshold?” he said
He said some of the churches under their ambit do not make any meaningful income while most struggle to pay their membership fees to CCN which is a paltry 10cents per member per church.
Beukes said it remains to be seen if the Inland Revenue will manage to get its way in collecting significantly from the already struggling churches.
Apart from collecting taxes from churches, the amendments also seek to require trusts to pay the taxman.
Section 16 provides for the taxing of receipts and accruals of charitable, religious or educational institutions derived from trade.
The government has stressed that any exemption under this section in respect of income other than that derived from trade, will only apply if the ministry of finance granted prior approval.
If no such approval has been granted, all income, either trade or non-trade income, of the said institutions will be taxable.
The other proposal is that the lower bracket tax rate for low-income earners should be reduced from 18% to 17%, while new tax rates of 39% and 40% for persons earning over N$1.5 million and N$2.5 million are being proposed.
Those who evade paying tax, according to the amended Section 96 would pay a fine of N$2 000 and serve a jail term not exceeding five years for international tax evasion and fraud.
What do experts say?
Analysts at Namibia Equity Brokers (NEB) have lamented the tax increases as creating a bad business environment which will result in low economic growth.
“While the reduction of tax rates for low-income earners is applauded, the majority of the remainder of these developments highly concern from a macro-micro economic perspective,” said NEB.
NEB had highlighted that these tax-introductions are coming at a time when the government was spending too much on salaries (over 50%) while costs of employing people, including office floor space, utilities, transport push this up to 60%.
The government has also been haunted by slow growth in revenue, a slowing economy and an ugly revenue outlook.
“The addition of more tax simply further reduces the return available to investors and further encourages such investors to seek alternative jurisdictions in which to do business,” warned NEB.