The Business community have thrown their weight behind Finance Minister Calle Schlettwein’s calls for a reduction in the withholding tax applicable to services rendered by non-Namibians from 25% to 10%.
Namibian Chamber of Commerce and Industry (NCCI) president Sven Thieme, said it is in line with international commercial standards.
“We need to make our own market attractive for international investors. This is even more necessary now that we are making waves to eradicate poverty. Foreign investments will add to the economy, and at the same time create employment for Namibians,” Thieme said.
Chamber of Mines’ Second Vice president Kombadayedu Kapwanga also accepted the motion with open arms, saying it will make the Namibian mining sector more investor-friendly.
“The reduction of withholding tax from 25% to 10% will boost the investor climate in Namibia, and will thus put the country at the top as one of the top investorfriendly countries,” he stressed.
Kapwanga added that the Minister’s motion comes at a time when the mining sector is battling a decrease in commodities’ prices.
Interest paid to non-resident persons, organisations, businesses or institutions which provide loans are currently not taxed as they do not have any presence in Namibia, Schlettwein stated further. This creates distortions in the tax system, as the interest paid by Namibian businesses is deducted for income tax purposes.
“This may also create the opportunity for multinational companies having Namibian branches to use loan arrangements to avoid or postpone tax liabilities by paying large amounts of interest to their counterparts in foreign jurisdictions under the sponsorship of a loan received from the foreign counterpart, thereby avoiding or postponing their tax liability in Namibia,” he stressed.
This is notwithstanding the fact that half-a-decade ago his predecessor, now Prime Minister Sara KuughongelwaAmadhila, had increased the withholding tax to 25% when she presented the budget for the 2012/2013 financial year in February 2012.
The withholding tax will be applicable to any payment made to any other non-resident person in relation to the activities mentioned above; where a Namibian resident pays any fee to a non-resident person for any administrative, managerial, technical or consultative services or any similar services, whether such services are of a professional nature or not; and where a Namibian resident pays any director’s fee to a nonresident person.
Schlettwein feels lowering the withholding tax to 10% will reduce the costly effect of acquiring foreign services for Namibian businesses, and that it will still be 10% more expensive for foreigners to render services in Namibia.
Namibian businesses and organisations make use of Foreign Service providers for a number of technical and specialized areas such as technology, finance, mining, geology and petroleum, amongst other. Namibia is usually not able to source these services.
“Introducing a withholding tax on interest at a rate of 10% will ensure that taxes are collected on interest arising in Namibia. Such amendment will also deter multinational companies and connected organisations to engage in loan arrangements as a means of reducing or postponing the tax liability of the Namibian enterprise,” Schlettwein recently said during a National Assembly session.
While due to be amended, the Income Tax Act 24 of 1981 provides for the taxation of royalties paid to non-residents, whereas the current effective rate is 9.9%, and will be reduced as the corporate tax rate diminishes as it is currently linked to the corporate tax rate. The royalty rate is, therefore, to be fixed at 10%.
The Income Tax Act also stipulates that tax be withheld from dividends and royalties before payments are made to nonresidents. This Act, however, does not penalize any person for not withholding tax from royalties or dividends. If dividend and royalty-payers neglect to withhold tax imposed, a penalty of 10% will be introduced.
“Government plays a Industries back Schlettwein on withholding tax critical role in ensuring that the economic environment is conducive to promoting business confidence, growth and employment-creation. In this respect, the non-mining company tax is reduced from 33% to 32%,” Schlettwein said.
He noted that the reduced rate is expected to incentivise businesses to reinvest and expand their operations, thereby creating more economic opportunities and boosting growth in the economy.
The Income Tax Act System (ITAS) is expected to be functional next year, and will provide for electronic means of communication, and the electronic submission of tax returns and electronic payments.
However, a legal basis will be required to enable the Ministry of Finance (MoF) to make regulations in this regard. Meanwhile, it is known that licences and rights in the extractive industry have become trading commodities, and income is generated from the sale of these licences.
Schlettwein feels that the objective of the taxation of profits from the sale of petroleum licences is to ensure that Namibia receives its fair share from the sales of petroleum licences and rights.
Therefore, any gain made in this regard will be taxed. Introducing the amendment to the VAT Act 10 of 2000, he further noted that Namibia’s current VAT threshold of N$200 000 is relatively low as it has been constant for 15 years since its introduction in 2000.
Schlettwein thus canvased for the increase of the VAT threshold from N$200 000 to N$500 000 for compulsory VAT registration, stating that it will alleviate the hardship on small businesses to adhere to the requirements of the VAT Act, while reducing the administrative burden on the Inland Revenue Department.