Income inequality is on the rise in many countries around the world, according to the United Nations and Namibia is no exception as it is seen as one of the most unequal societies globally.
The latest report released by financial research agency Simonis Storm on Namibian tax tables for November shows that Namibia has a Gini coefficient of 0.6.
Gini-coefficient is a measure of income inequality across a population.
Globally, Namibia in 2020 was placed at the third highest levels of income inequality by the World Bank.
“Namibia is known to be one of the most unequal societies in the world, with a Gini-coefficient of 0.6 (where 1 indicates total inequality and 0 total equality),”the Simonis Storm report says.
In other words, Namibia faces high levels of wealth and access inequality.
The report states that this is due to individuals at the bottom of the income distribution especially informal sector workers typically seeing their salaries growing slower, being more vulnerable to rising costs of living and now suddenly being eligible to pay taxes due to annual salary adjustments.
“In essence, rising inflation and interest rates in recent months, coupled with paying taxes as bracket creep progressed over recent years, all combine to place lower-income individuals in a worse financial condition,” Simonis Stormsaid.
The firm said that the unfair income distribution can lead to greater social tensions and frustrations, especially if low-income earners do not see benefits from their taxes paid.
Economists believe that the economic losses from less consumption spending outweigh the increase in personal income tax by taxing lower-income earners, emphasising that better economic growth rates should be targeted so that overall incomes rise. This, in turn, would increase personal income tax revenue collections.
The report further said the minimum taxable income has not been adjusted in Namibia over the last eight years, implying that low-income individuals who have been receiving annual inflation-adjusted salary increases have become eligible taxpayers in recent years.
Personal income tax is the second largest government revenue component after SACU revenue.
During his budget review speech in the National Assembly, finance minister Ipumbu Shiimi announced an increase in the minimum income tax threshold to N$100 000, which will be effective in the 2023/24 fiscal year.
“The minimum annual taxable salary was increased from N$40 000 to N$50 000 in 2014 in Namibia and has remained unchanged since then,”according to the Simoni Storm report.
This it said was a 25 percent adjustment and the cumulative rate of inflation amounts to 47.5% which the financial research agency said implies that the adjustment from N$40 000 to N$50 000 is inadequate.
“It does not account for inflation in the last eight years and does not prevent bracket creep.”
Namibia’s annual inflation rate measured monthly was 7.1% higher in October 2022 than in October 2021 when it stood at 3.6%. Monthly, the inflation rate increased by 0.2% compared to the 0.1% recorded a month earlier.
Statistics showed that transport, food, and non-alcoholic beverages continue to be the main drivers of the annual inflation rate in Namibia with a contribution of 2.6 percentage points and 1.7 percentage points.
Meanwhile, South Africa adjusted its minimum income tax threshold by 4.0% on average each year between 2011 and 2022 when its inflation averaged 5.0% yearly.
Recent reports indicate that Botswana increased its minimum tax threshold in 2021 for the first time since 2010 from 36,000 Pula to 48,000 Pula.
Despite an upward trend in unemployment, Namibia observed an increase in registered individual taxpayers from 2010 to 2021.
According to an Afrobarometer survey conducted in 2021, the national unemployment rate is estimated at 37% with a 3% margin of error.
The tax report for November indicates that the number of registered individual taxpayers increased from 401 273 in 2010 to 686 184 in 2021.
Whereas registered corporate taxpayers increased from 63,288 to 182,747 over the same period.
During the same period, regions that recorded the highest increases in registered taxpayers were Erongo with an increase of 92.0%, Zambezi with an increase of 82.2%, and Kharas increased with 78.0%.
“We then estimate an increase of 11,301 in registered taxpayers, while the number of unemployed has increased by 216,737 since 2010. This implies that 11,301 individuals could have become registered taxpayers as a result of bracket creep since 2010,” the report added.
Moreover, 34.1% t of Namibians find it difficult and 35.9% find it very difficult to find out how the government is using tax revenues.
In this vein, it stressed that there is an evident information gap, where the state’s budget and its allocations are not known to a third of the population.
Furthermore, Simonis Storm said it looks forward to the establishment of the Economic and Tax Policy Advisory Services (ETPAS) department within the finance ministry.
“As this unit can provide economic justification and policy recommendations on how to improve Namibia’s tax system, especially to adjust tax brackets for inflation regularly.”
It also expects the tax policy unit to be operational in the near future and views bracket creep as a serious policy failure that needs to be addressed.
“We do advocate for adjusting all income tax brackets for inflation on an ongoing basis, as is done in South Africa for example. Not only are income tax revenues limited from individuals at the lower end of the income distribution, but government and private companies run the additional cost of having to register, audit, and collect income taxes from lower-income earners,”Simonis Storm argued.
In addition, the firm said that taxable inflation adjustments can also partially assist in preventing income inequality from spiralling out of control.