Tax reform implications

By Hilary Mare
ANALYSTS have expressed mixed feel­ings over the tax policy and adminis­tration reforms announced by Finance Minister, Calle Schlettwein, in his budget presentation in the National Assembly last Wednesday.
Schlettwein proposed tax policy changes which generate about N$500million annually in addition to current tax revenue to support the implementation of the fiscal adjustment phase.
Apart from hiking sin tax by 10 percent on av­erage, Schlettwein proposed tax policy changes that include phasing out the preferential tax treatment that is only granted to some exist­ing manufacturers to achieve equity and equal treatment of all operators, repealing the Export Processing Zone Act and introduce the Special Economic Zones, with a sunset clause for cur­rent operators with the EPZ status, re-adjusting the current tax brackets for Individual Income Tax, reducing the lower bracket tax rate from 18 percent to 17 percent and introduce new tax rates of 39 percent and 40 percent for individu­als earning over N$1.5 million and N$2.5 mil­lion respectively and introducing a 10 percent dividend tax for dividends paid to residents to enhance the fairness of the tax system.
Simonis and Storm Securities, Junior Analyst, Indileni Nanghonga told Confidente that the se­curities firm viewed the budget as more reactive than proactive as taxes mentioned in the prior fiscal year have been ignored during the current budget statement, while at the same time new taxes were introduced.
She also went on to add that tax reforms, cou­pled with the NEEEF Bill are negative for for­eign direct investment.
“For removing the incentive for increasing manufacturing factories, we do not think this will encourage the creation of jobs in the man­ufacturing sector. It’s making Namibia less at­tractive for foreign direct investment,” she said reflecting on the phasing out of preferential tax treatment.
The securities firm also criticized increasing the fuel levy by 25 cents per litre for all levied fuel products saying: “Consumer spending will remain muted and disposable income will re­main under pressure. We find it hard to believe how overall debt will be reduced under this current environment. We expect this to be in­flationary.”
Further, introduction of an additional 5 per­cent national sin tax on alcohol and tobacco products was labelled as a measure that will strain an already strained consumer and hence this is expected to be inflationary.
Regarding reducing the tax bracket for indi­vidual income tax to 17 percent from 18 percent for the lower bracket, Nanghonga highlighted that they don’t expect this to provide significant respite to low income earners.
“We have seen unemployment in the lower tax bracket being higher during 2017 for in­stance, construction and as such don’t expect this to have a significant effect on taxes”.
However according to Simonis and storm securities, positive implications are seen in a 10 percent dividend tax for dividends paid to resi­dents to enhance the fairness of the tax system.
“This will close the loop hole that was created for the implementation of the 10 percent with­holding tax on interest a number of years ago. A large part of the savings pool is exempted from tax, but we expect that discretionary investors and corporates will be mainly affected by this new tax”.
The firm also sees the abolishment of the cur­rent practice of a conduit principle in the taxa­tion of trusts to harmonize the taxation of trusts in line with regional economies as a move that will hopefully close some tax loop holes that will generate revenue.
In view of deepening the current hybrid tax system by taxing all income earned from foreign sources, Nanghonga said: “The Minister has now opened the door for a regime change from the current source based tax regime to a resident based tax regime. We expect that further such residence based reforms will now be possible in the future”.
Cirrus Capital co-founder and analyst, Row­land Brown said that tax changes, with the ex­ception of dividend taxes, are reasonable.
“The dividend tax, however, is negative for small businesses,” he said

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