Shrinking of private sector a concern
The country’s teetering economy needs salvation, but experts have warned that attempting to increase revenue through tax increases should not be considered when finance minister Calle Schlettwein delivers the budget in Parliament next month.
Direct and indirect tax increases are always government’s consideration and they always hit the average man on the street the hardest.
Government recently admitted that the tax collection system is too lenient when it announced that it will write off close to N$15 billion owed by taxpayers in interest.
Statistics provided by the finance ministry last week indicate that there are currently 665 458 taxpayers in the country, but it seems not everyone that ought to contribute to the country’s tax kitty is honouring their obligations.
Simonis Storm’s director for research, Purvance Heuer, this week explained why tax increase is not advisable under the prevailing economic climate.
He said: “Economic growth can be stimulated by strengthening the private sector and making it more attractive to foreigners. Focusing more attention on skills development in critical economic sectors such as mining, agriculture and fishing is imperative. Reviewing the tax tables so as to give lower income groups more disposable income to spend is also a viable option.”
Heuer said given the current global political and economic policy uncertainty, we believe that continued fiscal discipline is necessary, while also exercising caution to safeguard the economy from external debt exposure.
“Specifically, we expect continued emphasis to be placed on tax-amnesty programmes to improve long-term tax collections such as waiving tax penalties and interest payments on tax owed to the government. This amnesty is intended to improve tax collections,” said Heuer.
He also touched on some of the critical issues that he thinks Schlettwein must address in the upcoming budget.
“Revenue optimisation is [more] critical than ever. This would entail fast-tracking the implementation of the Revenue Authority, which is expected to improve the efficiency of tax administration and collections. For instance, repairing the loopholes in tax administration and improving the extent to which VAT refunds are processed would enhance the velocity of money as the funds will go back into the economy and thereby help to sustain spending.”
He added: “Alongside, it is important that the process of refunding employers their VET training levy claims be speeded up to help employers keep employment numbers up, in the short- to medium-term.”
With the economy dragging its heels and taxpayers struggling to make ends meet, Heuer expressed concern about the rate at which the private sector is shrinking.
“As far as it is important for the government to continue to consolidate spending, care should be exercised to safeguard sectors that are reliant on government spending. We see a rebound in commodity prices, better rainfall and a more stable currency to improve economic growth going forward,” he said.
He noted that nevertheless there is a strong case to be made about raising taxes in sectors with high growth potential such as tourism. “Past experiences show that sectors that had registered strong growth numbers of at least 30 percent, in the case of construction, were undertaxed, in respect of consumption taxes.”
While parastatals continue to fail when it comes to meeting targets, despite them being key to the economy and possessing assets worth billions, Simonis Storm expects a detailed review of corporate governance structures, sustainability, funding requirements and integration.
And with economic growth having stagnated, to address the situation will need policy shifts in respect of financing and land reform policy.
“Essentially, the economy has been in a recession since 2013 if public administration and construction are stripped out according to our calculations. The deceleration in economic growth points at three realties, in our view: weak productivity growth, availability of skilled labour and rising cost of capital (land and finance).”
While the political environment in neighbouring South Africa continues to have a major impact on that country’s economic climate, Heuer said “we do not foresee the prevailing political environment to have a significant influence on the budget for two reasons”.
“First, the Medium Term Expenditure Framework (2016/17- 2018/19) introduced in 2016 has already set a fiscal blueprint that will guide the budgetary process during that period. One of the critical aspects of the MTEF is fiscal consolidation. Further, the Medium Term Budget Review 2016/17 has revised the budget ceiling for 2017/18 to N$59.9 billion. We, therefore, expect the ministry to remain on that course,” he said.
He warned that the worsening of the current account balance, which is estimated at -14 percent of GDP as of 2016 and the over reliance of the CA on SACU receipts increases the risk of attractiveness of Namibia to foreigners.
“SACU receipts represent 92 percent of the current account transfer in cash as at 2016. Thus, the increasing risk of attractiveness of Namibia to foreigners is an important issue that must be addressed to improve the level of Foreign Direct Investment and strengthen the private sector,” he said.