Local tax experts have warned Government against relying too much on taxes as the main source of public revenue, saying such an approach is not prudent, and is unsustainable in the long run.
The experts were reacting to the recent announcement by the Minister of Finance, Calle Schlettwein, who in his budget statement last week, highlighted that a tax proposal for a Simplified Presumptive Tax on small units will be developed and tabled.
Some of the taxes mooted in the 2017/18 budget include capital gains tax, which is a tax imposed on the disposal of capital assets, such as movable and immovable property, and shares.
The tax will be applicable to all Namibians that dispose of capital assets.
Schlettwein also said tax proposals on wealth tax will be developed further, to embody the principles of Solidarity Wealth Tax.
In addition, the minister announced that a phased rollout of the new Integrated Tax System (ITAS) will commence during the year, with full deployment of the system by 2018.
But the tax experts suggested that Government should look at other revenue streams, which could be derived from State-owned enterprises (SOEs), investment funds, fees from the issuing of licences and permits, as well as grants and donations, and property income.
Deloitte & Touche Director for Taxation Services, Gerda Brand, said while capital gains tax was a fairly easy administrative intensive tax, she doubted that the administrative cost to collect the tax would support the amount of tax collected.
Brand said another proposed tax, the solidarity wealth tax, could be effective, provided that it is used only to address inequality, and not just as another revenue stream.
“Generally such taxes are also applicable for a limited number of years, but we believe that to have tax as almost the only revenue source is not prudent, as it is not sustainable to increase the tax base and tax rates,” Brand said.
“We strongly believe that the Ministry of Finance needs to become more efficient in processing returns and payments, even in the interim, while the integrated system and Revenue Agency are still being developed.
“We also strongly believe that training needs to be provided to officials, so that they can effectively enforce the tax legislation that is already in place.
“We also believe the ITAS and (semi-autonomous) Revenue Agency could make a difference, and that the current tax incentive programme has the potential to improve taxpayer morale,” she said.
“One would have to see how the Namibian capital gains tax will be implemented. Solidarity wealth tax appears to be aimed at the higher-income earners. Although the minister did not provide comments on the objectives of this tax type, we do believe it has the objective of addressing the inequality in the country.’’
PwC Partner and Director, Stefan Hugo, noted that the “depreciating disposable income” of Namibians, was one of the key reasons why the finance minister did not immediately introduce new taxes during his budget speech.
He said that this “prudent approach” was probably the most appropriate.
Hugo said he was looking forward to simplified processes and less time required by taxpayers to comply with tax laws, once ITAS and related projects are implemented.
He welcomed the finance minister’s proposal to look for other sources of revenue, such as selling some Government assets, including selling shares in some SOEs, potentially through listings.
The tax expert said the reorganisation of public enterprises to reduce subsidies, specifically to commercial ones, and increase revenues, would result in dividend income for Government, as the main shareholder.
“The minister did mention capital gains tax and wealth tax (to incorporate solidarity tax) during his budget address, but no specific details were included, and our understanding is that legislation to implement this still has to be drafted.
“One can expect that both these taxes will place a bigger burden on wealthier Namibians (who own assets that appreciate in value) and high-income earners.
“Globally, experience has shown that wealth taxes target a relatively small group of people (in relation to a total population), and if not carefully designed and implemented, could have a disproportionately high administrative burden and costs, compared to tax revenue actually collected through these,” said Hugo.
Commenting on how best the Government can retrieve outstanding taxes, Hugo said that education programs, which help taxpayers to understand taxes better, could improve the accuracy of tax returns and collections; while tax audits of submitted tax returns, as well the financial affairs of those not registered for tax, are generally used to catch tax evaders.
He said simplifying tax processes, and making it easier to pay taxes, should also improve tax collections.
“We understand that this is one of the main drives behind the business process re-engineering project and ITAS, which Inland Revenue is working on.
“One of the aims with the establishment of a Revenue Authority, by 2018, is to diversify the skills of tax collectors and increase the movement of skilled employees between the private sector and the Revenue Authority,” Hugo said.