In order to ensure increased tax flow, the Inland Revenue Department (IRD) needs to conduct transfer pricing audits, especially for Multi-National companies (MNC), Tax Leader at PriceWaterhouseCoopers (PwC), Stefan Hugo has said.
Although Namibia’s legislation allows for the tax transfer pricing, the Inland Revenue Department does not actively conduct this audits.
Speaking to The Villager, Hugo said that the allocation of tax revenues of multinational companies is globally in the spotlight, and revenue authorities are working together to establish and enforce rules to ensure that multi-national companies pay their fair share of taxes in all countries, as is done through tax transfer rules.
“It is crucial that Inland Revenue starts enforcing transfer pricing rules. Typical constraints to collecting taxes due under tax laws include taxpayers not registering for taxes as required, taxpayers submitting incomplete or inaccurate tax returns, the complex and slow tax filing processes that makes it difficult for taxpayers to pay their taxes due to the current system used by inland revenue where taxpayers have to physically visit Inland Revenue regularly to obtain a tax status report to confirm if they have outstanding taxes that should be paid,” Hugo stressed.
The same corporate tax rate (of 32%) applies to all companies and closed corporations in Namibia. Recently, the Inland Revenue Customer Care Desk ran out of paper and could not print these status reports, putting delay to the process of tax payment, Hugo said.
“To remedy late or non-payment of tax, government must ensure that all foreign companies who win government contracts, for example, are registered for all taxes, probably before making any payments under the contract. Once entities are registered it is easier to enforce and check their compliance with tax laws. It could, however, be an option to look at taxes paid by entities whose tax accounts are handled by Inland Revenue’s Large Taxpayers Office, and compare that to taxes collected from all companies and CC’s,” Hugo said.
Government is collecting a large amount of revenue through taxes, compared to other countries, putting the country’s gross domestic product (GDP) at 34%, compared to the global average of 23%. Personal income tax makes up by far the largest portion of taxes on income and profits and is expected to represent some N$15. 5 billion in 2016/17 which is 28% of the total revenue. Taxes on non-mining corporates form the largest source of income and profit taxes at N$5.8 billion in 2016/17, followed by diamond mining company taxes at N$491 million.
Head of Research at IJG Securities, Rowland Brown, said despite the slowdown in revenue collection, the Namibian government collects large amounts of revenue collection, relative to GDP, adding that it raises questions about proposals to increase revenue through new taxes, while suggesting that the current deficit challenges that Namibia faces are more to do with expenditure than with revenue.
“While the Ministry of Finance does not expect to see contractions in other major revenue lines in 2016/17, revenue growth is expected to slow pretty much across the board, with taxes on income and profit growth slowing from 33.2% in 2015/16 to just 4.7% in 2016/17. Similarly, VAT collection growth is expected to slow from the budgeted growth of 27.5% in 2015/16 to 13.1% in 2016/17,” Brown stated in The Institute for Policy Research (IPPR) Democracy Report of April 2015.
Government is expected to collect N$518 million in 2017/18 and N$547 million in 2018/19 through Environmental tax, with nothing budgeted for the 2016/17 year. Export tax is not directly budgeted for, however, non-diamond mining company tax is budgeted to increase by 44% between 2017/18 and 2018/19, which may be down to export taxes. Brown noted that this exported taxes are a bad idea as they are unlikely to achieve their objective and are highly likely to end up being a punitive tax on miners.
“Proposals for a presumptive tax on the informal sector are somewhat concerning as well. However it appears that such a tax is currently being considered (and hopefully researched), rather than proposed for implementation. It is generally felt that such a tax will be challenging to administer, as well as placing a tax burden on a relatively low income part of the economy,” Brown added.