We have seen a lot being written about lifestyle audits being planned in Namibia and it is also again being pundit for use in South Africa, again. The question remains unanswered as to whether or not this process is the saviour of tax collections or if it is just another villain that takes large amounts of energy, money and capacity with little to show for it in the end.
Let’s start with a definition of Lifestyle Audits. When your lifestyle is being audited the auditor/investigator will scrutinize your assets, being your home, investments and also things like motor vehicles and luxury assets. He/she will then compare the costs of these items or the way that you funded these items with your declared income for taxation purposes in order to determine how you could afford these items. If there is a discrepancy between your income and your assets then questions will be asked and you will need to proof how these items were bought.
One will need to mention from the start that the audit itself is not proof of something being amiss. Actually the audit itself is just the beginning and then it will need to be proven that something is amiss or not. There is an onus of proof on both you as taxpayer and also on the investigator/auditor.
We need to look at the ideal environment to perform such intended audits. In an ideal situation the database systems used by Revenue Authorities, Deeds Offices, Financial Institutions, The Master of the High Court, being the regulatory office of Trusts, and The Company Registrar’s Office need to be accessible from a central location and one will need comparing software to compare these records electronically with each other. Currently this is not the case in Namibia. Given the situation currently in Namibia, this will result in a lot of the investigation work being done manually, which will utilise large amounts of man hours and people capacity, which will need to be found outside the current Revenue Authority since the capacity of the staff of the Receiver of Revenue is already under pressure.
We are not convinced that the current legal framework in Namibia will allow this form of investigations. Our current legal framework do not allow for unwarranted and unsolicited investigations and access to information as maybe applicable in other jurisdictions. That will result in the results of these investigations being challenged in court on technical grounds and not necessarily on grounds of merit. It may also lead to these investigations being discarded by the courts in its totality.
Is the answer then to discard this form of investigations by the Receiver of Revenue? We believe not. What we do believe is that in our current situation it will not be a saviour and before one starts down this route one must ensure that the matters addressed above are in place first and that will unfortunately take time. This is therefore a method for use in the future.
How do we improve revenue collections then? How do we increase the number of registered taxpayers then and ensure that everybody is registered that should be?
The answer to this starts with our Namibian Income Tax Return forms. The information requested on these forms should be updated to provide for the changes in the economic realities of Namibia. Completion of ALL the information requested by each and every taxpayer must then be enforced. With detail information and accurate processing of this information the Revenue Authorities will be able to determine very quickly who are living outside their ways and means. This information will also enable the Receiver of Revenue to increase its normal audit practices more efficiently and effectively.
How do we get people registered? We need to get investigators from the Revenue Authority or contracted parties out into the streets and into the markets. This form of investigations cannot be done from behind a desk yet. These investigators will need to roam the streets and identify cases for further investigation. Spot check audits, currently allowed in terms of our Income Tax Act, should be used more regularly. The idea behind these spot check is however not to do detail investigations on site, but to identify areas or people that should be subjected to detail investigations. With some basic skills and awareness one will be able to quickly identify these matters and people that are not yet registered or that should be investigated.
There are so many ways of increasing revenue collection in Namibia without putting pressure on the current infrastructure of the Revenue Authorities. There are many ways of increasing the capacity of the Revenue Authority without appointing additional staff members. One will need to think and work smarter not harder.
We hope that we have provide a small glimpse on what Lifestyle Audits is and why we think the timing for it will need to be delayed somewhat. We hope that we have provided some insight into what else could be used in order to ensure that everybody pays their dues.