Government has assured companies currently operating under the Export Processing Zone (EPZ) regime that they will continue to benefit from tax breaks, although an option to migrate to the proposed new regulations will be offered.
Finance Minister, Calle Schlettwein, announced last week that Namibia will be repealing the Export Processing Zone Act and introduce Special Economic Zones, with a sunset clause for current operators with the EPZ status.
“They will retain the status. The proposal is that all existing EPZ companies would have the option to either retain their current status, or voluntarily migrate to the new status,” the finance minister told the Windhoek Observer on Thursday.
Clarification by Schlettwein comes as his announcement last week had caused unease amongst those operating under the dispensation, especially those in the mining sector.
According to the Chamber of Mines, Dundee and Skorpion Zinc were the only two known members out of 113, which were operating under the EPZ status.
Chamber of Mines of Namibia, Chief Executive Officer, Veston Malango, told the Windhoek Observer in an interview that the EPZ regime is a contractual document between government and the players which cannot be canceled without the other party’s consent.
“It’s a signed agreement and now government has announced that they want to move away from that. According to what I have read in the budget speech, government says it wants to revoke the EPZ Act, but what needs to be done, in my opinion, is to negotiate with those companies, so that their moving away from those set conditions should not disrupt their operations,” Malango said before Thursday’s clarification by Schlettwein.
The chamber also noted that government would have found it difficult to cancel the existing agreements with the two miners.
“It’s something that you should negotiate and negotiate in good faith and come to an amicable solution, so that those entities should be able to continue operating, providing jobs and everything to the communities they are. It would help a lot if government negotiates with them, so that it’s not an arbitrary thing because it’s actually a legal binding agreement,” Malango said.
“If it is done abruptly, it can be catastrophic, but if done in a manner which does not disrupt their business and their sustainability, then it’s something that government has to discuss with them from that, not to disrupt or kill that industry.
“The unfortunate part about this is that those members came to Namibia and invested with these set of conditions and down the line government comes and say we are changing with another set of conditions, and that throws you off your feet and you have to start again.
“You don’t want to have a situation, where they say, if you are doing this, we are packing up, certainly nobody wants to see that. So it’s a negotiation thing, a delicate thing.”
Speculation had been rife over the future of towns such as Tsumeb, should Dundee, which only processes copper under the EPZ status, opts to pull out.
Efforts to get comment from both Dundee and Skorpion Zinc proved fruitless.
Established in 1996, the EPZ policy was mainly targeted at companies that mostly produced goods for export as government hoped the policy would increase the share the manufacturing (industrial) sector contributed to job creation, the country’s gross domestic product (GDP) and exports of manufactured goods; and thereby enhance the diversification of the local economy.
The EPZ regime was instituted to serve as a tax haven for export-oriented manufacturing companies in exchange for job creation, development of skills, transfer of technology and inflow of capital.
Last week’s announcement was seen as Namibia conceding to the European Union’s (EU) demand that it reforms its taxation system.
Namibia is currently blacklisted by the European Union as a tax haven, citing its failure ratify the Organisation for Economic Cooperation and Development’s convention and abolish harmful preferential tax regimes, such as the EPZ Act.