The Ministry of Finance (MoF) has issued 616 245 tax returns worth N$102 million in favour of individuals and companies that paid tax to the State for the financial year 2014/2015.
Claims of tax returns are made at the MoF by submitting a self-assessment return of income before the end of June every year, and companies are subjected to submit a self-assessment return of income within seven months after the end of its financial year for paying, The Villager understands.
The Inland Revenue Office face challenges with group tax payable by close corporations (CCs) that are registered with the Registrar of Companies but do not commence trading due to consultants who earn income through selling shelf companies and aspiring entrepreneurs that register companies for tendering purposes while their companies remain dormant.
Speaking to The Villager the Commissioner of Inland Revenue Department (IRD), Justus Mwafongwe explained that a tax return is a declaration of income by tax payers to the IRD, and that employees of companies and employers are responsible to register to pay tax in order to claim tax returns.
“A person who earns a salary of more than N$ 50 000 per annum should register as a taxpayer and submit the proof of registration to the employer so that the employer can deduct the tax from his or her earning monthly,” Mwafongwe said.
He added that a tax payer in the category of income tax return for individuals should, after the end of the tax year, submit a self-assessment return income and tax is deducted from a salary at progressive tax rates with a minimum of 18% and a maximum of 37%.
According to Mwafongwe there is no specific sector that can be singled out as fully compliant with tax laws.
“There is not a specific sector that one can single out that it is fully compliant with tax laws. Cases of non-compliance are found in all sectors. However, there are sectors where the risk of non-compliance is high. These include the informal sector where the mode of payment for goods and services is usually on a cash basis, construction industry where subcontracting of works is more prevalent, tourism and trophy hunting where transactions and payments can be made outside the country,” Mwafongwe said.
He added that the risk of tax non-compliance also exists in the formal sector especially among multinational enterprises where transactions between related parties take place which present opportunities to unethical and dishonest businesses to engage into aggressive tax planning. These multinationals enlist services of tax planners for advice. Usually transfer pricing and thin capitalization methodology is used to unfairly shift profits to tax haven countries. This is known as Bases Erosion and Profit Shifting (BEPS).
The number of companies owing taxes change almost every day as submission and processing of tax returns take place.
Debt cases of companies on the debts list include the number of companies that made payments via Electronic Funds Transfer (EFT) because their accounts are not updated. Cases may be included in the tax debt account when they are in fact not owing and the IRD cannot provide the exact number of companies that are on the debt list The Villager has learnt.
According to IRD, when a company is heavily taxed that it has to cut costs, including salaries, the effect it has on employment in the country has to be looked at from a wider perspective
“Allowing non-compliance with tax laws to perpetuate has more devastating economic consequences than penalising few defaulters, which may lead to some cost cutting measures including downsizing in some cases in order to enable defaulters to settle their tax debt. Fining defaulters is good so that these defaulters, and to be defaulters, can learn a very good lesson in order to change their behaviours,” Mwafongwe said.
He also added that what has been observed is that companies do not want to be exposed for being not compliant with tax laws, therefore in most cases companies would avoid to reveal that they are cutting salaries in order to pay the tax bill. “If they do so, employees might exert more pressure on them, especially if tax owed is for employees’ tax. We are therefore not convinced that fining tax defaulters would affect employment in Namibia. In fact it will help to create more employment opportunities. Government is able to initiate and implement more capital projects if all persons pay their fair share of tax to the State,” Mwafongwe said.