The Customs and Excise department at the Ministry of Finance (MoF) recorded that the loss attributed to tax evasion is estimated close to N$24 million in the 2013/14 financial year (FY).
In the last two years, a total of 2974 cases of Tax evasion have been recorded by the MoF, and evasion of tax has been found more common in sectors that deal with motor vehicles, tobacco products and electronics.
Permanent Secretary at the MoF, Ericah Shafudah said these losses were credited to offences such as falsified documents, false declarations, failure to declare, diversion and undervaluation to mention a few.
Shafudah went on to say that historically, individuals were identified as frequent tax evaders but over time this trend was observed in companies, adding, that it is observed that syndicates are colluding with companies or individuals to defraud the government.
“This, however, is still in a minority. Well established and reputable companies normally do not want to be involved in Tax evasion as they want to maintain a reputable business image,” she said.
She added that to curb Tax evasion in the Customs and Excise department, the line ministry put up measures such as the implementation of risk based systems that encompass the National Customs Enforcement Network (NCEN) and risk based audits, modern customs and tax systems that take into account recent development in commerce and systems interoperability and security, “Installation and commissioning of scanners at all major points of entry and public education through awareness campaigns, workshops and media releases,” said Shafudah.
Meanwhile, in regards to the Inland Revenue Department at the MoF it was not possible for the ministry to quantify or give a rough estimate of how much was lost in the revenue due to Tax evasion in Inland Taxes but however through the ministry’s normal tax audits they came across incidences where some of the taxpayers under declared their taxable income.
Last year the ministry through the Inland Revenue department undertook a special project to investigate tax affairs of some companies to whom government awarded tenders and through that project, preliminary results showed that some companies did not declare all their taxable income and now currently the investigation is still underway.
Shafudah further noted that the investigation involves approximately 123 cases, adding, that it is not to say that all the cases mentioned above involve tax evasion.
“In Inland Taxes there is no specific sector which can be singled out for tax evasion, it can occur in any sector,” said Shafudah.
She further noted that incidences of Tax evasion usually involve companies and self-employed individuals because of the fact that they are provisional tax payers who calculate and pay their taxes themselves unlike salaried individuals whose tax is deducted at source, “meaning that employers are withholding tax through Pay As You Earn (PAYE) from their monthly salaries,” noted Shafudah.
Shafudah added: “The fact that companies and self-employed individuals have to determine their own tax liabilities and pay such taxes voluntarily poses the risk of under declaration and non-disclosure of all taxable income which can be regarded as Tax evasion”.
To curb Tax evasion, the MoF through the Inland Revenue Department has seven regional offices that are tasked to monitor tax evasion through audit activities, tax education and other compliance measures.
Shafudah said that the Inland Revenue Department also has specific units that conduct in depth audits and tax intelligence investigations, whilst other enforcement measures include requirements to submit good a standing certificate for tendering, offshore investments or renewal of work permits; and exchange of information with other law enforcement agencies such as Customs and Excise, Financial Intelligent Centre, Anti-Corruption Commission and so forth.
“Further, tax reforms such as the development of the new tax computer system, review of business processes, legislation review and the establishment of the Revenue Agency are being implemented in order to improve efficiency and voluntary compliance which are effective tools to curb tax evasion,” said Shafudah.
In 2013, more than 500 Namibian companies both small to medium scale and established companies were not tax compliant because these companies were not either sure of the process, or were just not compliant.
Due to that, the ministry’s attempt to improve the tax collection system on Value Added Tax (VAT), Corporate Tax and Pay As You Earn (PAYE) may possibly provide a lasting solution to the uncertain revenue patterns in the country.
Improved compliance by corporate in paying their dues to the tax men will see Namibia create a guaranteed source of revenue within the country and cut out on the over dependence on SACU.
The Director in Tax at Deloitte & Touche, Gerda Brand described Tax evasion as being the illegal actions by taxpayers to not pay taxes due in terms of the country’s tax legislation; she added that it generally impacts negatively on a country’s economy as governments do not collect the taxes that are due in terms of the legislation.
“That has spill-on effects e.g. Infrastructure development and other important budget allocations like education and health services may suffer as a result.
“Tax evasion practices also require governments to spend more on tax collection through audits, court cases etc. It can even increase the tax law abiding taxpayers must pay if governments have to increase taxes to meet revenue needs,” said Brand.
Brand further noted that generally the reason for tax evasion is because taxpayers feel that they are paying too much tax, or paying taxes in too many countries, especially if taxpayers feel they do not receive services equal to the tax they pay.
“Firstly, communications with taxpayers is key, especially how tax money is used to improve the country and contribute to effective government services.
“Secondly, taxpayer morale needs to be taken into account and tax amnesty programs should be considered. Thirdly tax laws and future changes need to be clear and certain,” said Brand.
Brand added that tax evasion globally occurs both on a systematic and individual approach, adding, that effective and service orientated tax administration can assist in curbing tax evasion.
“None of these will provide a winning recipe and the most effective model would be a combination of these and other factors depending on the unique reasons for tax evasion in a particular country,” said Brand.