…PwC tax experts expect strong focus on tax collections
The 2017/18 national budget is probably the most-eagerly awaited budget since Independence, mainly due to the prevailing economic climate in the country.
The liquidity crisis has forced government against the wall, so much that several capital projects have been shelved and spending priorities continue to be revised on a daily basis.
Experts have indicated that as much as past policies are to blame for the current economic situation, the impact of external factors cannot be overlooked.
In fact, tax announcements expected in this year’s budget is expected to test the pain tolerance levels of all taxpayers. But although direct and indirect tax increases are a must, experts have warned that raising tax rates further could slow economic growth.
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. This comes at a time when the money is needed desperately to save the country from an economic meltdown.
Official statistics 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 honoring their obligations.
The tax office in Oshakati is a good case in reference for unpaid taxes, despite many northern based businessmen amassing so much wealth over the years.
For the 2016 financial year the Oshakati tax office collected N$481 million in taxes, about N$50 million less than the Keetmanshoop office which only has 45 611 taxpayers.
The Large Taxpayers Office and the Windhoek regional tax office are the biggest tax revenue contributors in the country having collected over N$27 billion during the current financial year, N$15.8 billion and N$11.4 billion respectively.
The Patriot interacted with tax experts from PwC Namibia, a leading player in the country’s finance sector, who shared their expectations from the upcoming budget and at the same time shared their thoughts on what they think are the issues that Finance Minister Calle Schlettwein must address when he delivers the budget speech in Parliament next month.
What do you expect from this year’s budget, especially when considering the prevailing economic crisis?
Stefan Hugo, Tax Leader, PwC Namibia: I believe the Minister of Finance has set the tone for the upcoming budget speech during the mid-year review. He indicated that one of the aims of the mid-year review is to announce policy stances, so we expect the measures introduced to curb the impact of a slower economy to continue for 2017/18. These include: Budget cuts as set out during the Mid-year review, but potentially with minor realignments. Focus on strengthening of tax collections through establishment of the revenue agency and a number of tax programs previously announced.
What are some of the critical issues that must be addressed in the upcoming budget?
Nelson Lucas, Associate Director (Indirect Tax and Transfer Pricing), PwC: Issues we would like to see addressed during the budget speech include the Ministry continuing its drive to bring government expenditure in line with the current budgets and continued focus to manage the country’s debt exposure.
Some forecasts on Government’s cash flow position (which is important for business confidence).
Measures by Government to improve the ease of doing business, will be important to support the required economic growth and to build investor confidence (for local and foreign investors).
Namibia is currently suffering low economic growth, many say additional income can only be raised through higher taxes. Do you think it is advisable to raise the taxes under current conditions?
Riana Esterhuyse, Associate Director (Tax Walvis Bay Office): Raising tax rates could potentially further slow economic growth, and we believe the Ministry understands that.
The Ministry has been focused on increasing tax revenues through improved compliance with existing tax laws, targeting tax evaders rather than law abiding taxpayers (the latter normally carry the bulk of liability from new taxes). We expect Inland Revenue to become more active on inter alia, Pransfer Pricing, Thin Capitalisation rules (that limits the amount of tax deduction for interest on foreign loans) and tax fraud.
Do you expect any significant movement on the tax front in the next budget?
Johan Nel, Tax Partner (Corporate Tax): We expect the Minister to update the nation on existing projects, which have been announced and discussed in the mid-year and previous budget reviews.
The IMF conducted a review at the end of 2016, and we understand their recommendations included a number of projects such as the review of VAT administrative procedures and reconsidering some VAT zero ratings.
Further research and development proposals for presumptive tax (and considerations if some withholding tax provisions in the Act can be used to introduce this)
Other projects in the pipeline include:
The new Customs Act
A new Transfer Duty Act (expected to charge transfer duty on the sale of shares/member interest in property owning entities)
A study to determine the viability of Capital gains study, started early 2017
Establishment of the Revenue Agency (we understand that the Establishment Act Bill currently in final review stages with the legal drafters)
The new ITAS system (which is planned to introduce e-filing), is currently testing phase with expected rollout to some Large Taxpayers (registered with the LTO) in 2017.
The current Tax Incentive (Amnesty) Program to improve tax collections, and also clean up the existing tax system prior to moving over to ITAS.
Transfer pricing – Assistance from the Africa Tax Administrators Forum (ATAF) includes training for Inland Revenue’s Transfer Pricing team and guidance on TP audits.
Tax collection is said to be one of the major reasons why Government revenue is so low. What do you propose should be done to change this?
Chantell Husselmann, Tax Partner (VAT, Customs): One of the aims with the Revenue Agency is to attract more specialised tax skills. With a bigger team of tax collectors actively focused on tax compliance, the agency should be able to increase collections.
The Tax Incentive program is also aimed at speeding up collections for some outstanding tax amounts and widening the tax net (perpetrators who did not previously registered for tax, can now do so with limited interest cost).
Our feedback however is that tax collections are expected to be close to the revised targets the Minister set with the Mid-Year budget, and that SACU revenues may be better than expected.
We could however run into more trouble, if the economy slows further and it is important that:
Namibians are focused on creating and building strong businesses and Government keeps on improving the ease of doing and setting up business in Namibia (which specifically includes limiting the regulatory burden on Namibian businesses to what is absolutely necessary).
There is a huge revenue target in a slow-growth economic environment. Can we expect things to be tough on taxpayers?
Chantell Husselmann: Yes. Especially for those who do not comply.
Some parastatals continue to fail when it comes to meeting targets, despite them being key to the economy. What should the minister do in this space?
Stefan Hugo: We have seen some good plans and support for parastatals from the Ministry of Public Enterprises, and I believe that the MPE is on the right track. A combined effort with and support from line Ministries is however crucial for these plans to succeed and to get some parastatals off the funding budget.
Economic growth has stagnated. How can this situation be addressed?
Stefan Hugo: Although there are some valid criticisms relating to the impact Government’s past policies had on our current situation, we were definitely affected by global and regional factors as well. Responsibility for our economy lies with all Namibians and our only option is to own the problem and work hard to get ourselves out of the situation. We should support Namibian businesses(large and small); create a favourable environment for (foreign and local) investors, think positive, find solutions and make plans.