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Offshore bankingÔÇÖs implications to the local economy

Mon, 27 July 2015 04:19
by Charmaine Ngatjiheue
Business

Offshore banking has more often than not been linked to the concealed economy and crimes organised through tax evasion and money laundering.
Meanwhile, legally, offshore banking does not prevent assets from being subject to personal income tax on interest.
This excluding certain people who meet impartially multifaceted requirements, the personal income tax of many countries makes no merit between interest earned in local banks and those earned abroad.
In simple terms, an offshore bank is a bank situated outside the country of habitation of the depositor, in most cases in a low-tax jurisdiction (or tax haven) that delivers financial and legal benefits.
Offshore banking becomes illegal when the depositor/tax-payer does not make a declaration of the income or the evasion of the tax on that income.
In general offshore banks may decide not to report income to other tax authorities, and they have no legal obligation to do so as they are protected by bank secrecy.
Globally, there have been many calls for more regulation on international finance, in particular regarding offshore banks, tax havens, and clearing houses such as Clear stream, based in Luxembourg, being possible crossroads for main illegal money flows.
Meanwhile, supporters of offshore banking have disapproved the attempts at regulation, claiming the process is not prompted by security and financial alarms, but by the desire of domestic banks and tax agencies to access the money held in offshore accounts as offshore banking offers a competitive threat to the banking and taxation systems in developed countries.
Deloitte and Touche’ Audit Partner Johann Cronje said in terms of money laundering and tax evasion there are also many illegal uses of offshore banking which, amongst others include hiding the true nature of criminal profits or removing much needed capital from the country without the proper exchange control approvals.  
Cronje said the former gives leeway to criminals to hide their illicit gains and then use the money later as if it was legally obtained and the latter deprives the country of investment funds.
He said regarding  the regulations offshore banking in the country, the Bank of Namibia delegates the function to accredited foreign exchange dealers and regularly reviews the dealers’ compliance with the set regulation which is all in all a fairly robust process.  
“In addition the Financial Intelligence Centre also enforces various pieces of legislation and regulation aimed at combating money laundering and terrorist funding,” Cronje said.
He added that there is already some sophisticated regulation in place to ensure the proper regulation over the flow of funding in Namibia.
“Namibia is part of the Rand monetary union and therefore closely follows the exchange control regulations as set by the SA reserve bank to ensure that funds taken offshore are appropriately approved,” he added.
However, Cronje said  the legitimate business/investment reasons for offshore banking is for businesses with exposure to foreign exchange transactions in retaining or sending some funds offshore that limit exposure to foreign exchange fluctuations.
This reduces price volatility for customers and consumers and give local companies the ability to import items used in manufacturing or resale thereby benefitting the local economy
He said this is for instance in the whole mining industry, large parts of agriculture, fishing, consumer goods like motors, phones, “white goods”, etc .
“Similarly, for individuals, being able to invest a portion of their capital (e.g. money set aside for retirement) in an offshore fund allows for a hedge against local inflation and foreign exchange movements.  This benefits the individuals in country to be able to maintain their standards of living (which means spending money in the local economy),” he said.
Finance Minister Calle Schlettwein who also commented on the offshore banking topic cemented Cronje’s statement, saying that the regulations would be under the foreign  exchange cartel at the Bank of Namibia saying that it is something that falls under and is monitored by the foreign exchange rules.
However he noted that what government would like to see is the country’s capital leverage thus ensuring the capital is invested in the local economy.
“Our money needs to be reinvested in the local economy and we want to minimise the losing of our finances. The economy needs to also benefit from all these,” Schlettwen said