Saturday 17 April 2021
  • :
  • :

Averting the imminent SME tax national catastrophe

A piteous and pointless national tragedy is in making, due to the perceptive failure of some Namibians in understanding the disastrous consequences of the ill-handling of the tax amnesty for the 55 200 tax defaulting business owing N$4 billion in principal tax debt, in the form of a drastic reversal of post-independence poverty eradication gains, and the obliteration of the pursuit of prosperity as a national goal.
Tax amnesties are not unique to Namibia, many responsible countries the world over have given such amnesties before, either to broaden their tax base, or to make defaulting individuals and companies pay tax without the fear for prosecution and penalties, this way they continuously fuel the progress of their economic systems. These amnesty programs are usually well planned with clear objectives and target goals which could be for the country to raise a certain threshold of capital from such sources in the short and long term basis.
They take into account many considerations such as the prevailing economic and financial climate, the potential of the target client to pay up within a given timeframe and so forth. South Africa is an excellent case in point. Since 1994 to date South Africa has launched about seven generous tax amnesty programs. In comparison, the Namibian Tax Amnesty program, although an appreciatively good effort was too short, and very lean as it offered, very little. Given, the current serious economic recession and lack of capital liquidity, requiring SMEs and individuals to pay principal debts in six months, plus 30% of the interests is as incredible as expecting the parched dry Namib desert to produce a bumper harvest in the midst of a severe drought spell.
A little common sense would inform that such cannot happen. Making statements like “they have enough time to pay up, no capital write offs” or “these are just greedy black BEEs, Crooks etc.,” and giving unsustainable datelines reveals a serious lack of rational cognitive insightfulness on the dynamics involved and potential national ramifications. Although a good effort, it is very doubtful that the amnesty was well theorized and implemented. Subsequently, it yielded only over N$240 million out of the N$4 billion. South Africa, has a very interesting learning curve history of tax amnesties. They had the Katz Commission which did prior conceptual work for the Tax Amnesty of 1995, which CLEARED THE SLATE for taxpayers with outstanding tax liabilities prior to 1994. In 1996 it was followed by a 2nd tax amnesty which was offered under the Final Relief on Tax, Interest, Penalties and Additional Tax Act, same as the first one.
The 3rd , the Exchange Control Amnesty Act of 2003 followed. The 4th , was the 2006 Small Business Tax Amnesty and Amendment of Taxation Laws Act; 5 th, the 2 Voluntary Disclosure Program (VDP) in 2010 and 2012; and the latest Special Voluntary Disclosure Program, October 2016 to August 2017, on offshore assets and income. Of crucial interest is that the 2006 Small Business Tax Amnesty completely EXONERATED the companies and individuals with an annual gross income of N$10 million from any tax liability for income, VAT, Secondary Tax, withholding and employee taxes for all the periods preceding 2006, the year of the tax amnesty, meaning zero principal tax debt too.
They only had to pay tax starting in the same amnesty year of 2006 (which was generously affordable in terms of the capacity to pay up in a short period, unlike in our case where defaulters were requested to unsustainably pay 100% of the 27 years of accumulated principal debts plus 20% interests in six months in the throes of an earth-shattering Namibian recession).
If the South African government could write off all penalties and interests and even principal tax debts in 1994/96, first for all white people (as they were the majority tax liable people then), and again in 2006 for all people, what renders it such a fiscal or scientific difficulty for Namibia to do the same for the 55 200 companies and individuals (of which presumable the majority of these are indigenously owned SMES) owing N$4 billion? Previously, the Namibia Institute of Professional Accountants (NIPA) appealed to Government to extend the tax amnesty at least until December 2018, due to administrative complexities, but most importantly as “… most taxpayers want to pay, but do not have the financial means to settle full amounts immediately.”
The Namibia Chamber of Commerce and Industry (NCCI) also added its voice, stating that Government should work with these companies to find a common solution, but these seemed to have fallen on deaf ears of the Ministry of Finance officials, who clearly are financial experts but not of complex socio-economic and political interplay. It is granted that the Ministry has an important and difficult fiscal balancing role to play, but it should accommodate other expert views as well as appreciate the setting, limitations and the bigger picture, so as not to appear as with the recent cases of the SME Bank, and the RCC, to be in a haste to close shop and layoff in single-minded pursuance of fiscal optimality.
As a result, its envisioned mass court asset forfeitures of whatever remaining little assets they can lay hands on of the 55 200 SMEs will strike a heavy blow at the heart of government’s anti-poverty campaign, and impoverish a great deal of Namibian households. Judging by the closure of SMES businesses on a daily basis and retrenchments (please read the excellent opinion piece in the Observer Newspaper under the heading “Politics must not eclipse everything”, September 1, 2017), the country is bleeding business closure and unemployment at an alarmingly fast rate, of which the scary repercussions will be visibly felt next year onwards. Even extending the amnesty a further six months or 3 a year is not the ideal solution (remember the problem is not the will to pay, but the capacity to pay. We have a serious cash crunch, and these SMEs and individuals also owe loans to the Banks and other individuals-we are a credit based society).
A creditor’s nightmare, yet a realistic functional solution would be to cut the losses, gain a minimum by reversing the demand ratio: 20% threshold (in some instances even down to 10% or 5%) of the principal debts; no interest and penalties; and enter into a three year repayment plan, and thereby raise at least N$1billion (N$333 million p.a. x 3 yrs.); foster business buoyancy in the local economy, retain some jobs and the political and moral high ground too. The opposite alternative is to be: unwisely legalistic, sermonizing, and heavy-handed on every single defaulting SME & individual. Thereby destroying the SME sector and households security through a domino effect; unleash wholescale homelessness and unemployment; perhaps recover at best another once-off N$300 million, at a great socio-economic and political cost and injury to the government and the people, and importantly irreversibly substitute the local SME sector with more South African and foreign business interests.
The basic truth is that same as key commercial banks (Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester) were too big to fail due to their economic importance, and of necessity had to be rescued by the USA and European governments with trillions, following the 2008 financial bankruptcy of the Lehman Brothers, so is our local SME sector. That is what constitute part of our sum total of national interests, and also the unspoken reason why countries such as South Africa and others extended such generous tax amnesty conditions to their tax defaulting SMES. It is not because of piety or government altruism.
Our indigenous SME sector too, due to its 10% contribution to the GDP, 46% to employment and 21% to households, is too important to be allowed to fail, as it comprised our national economic interests. For that reason and given the potential cataclysmic consequences of its fall, this is not only a fiscal issue for the discretion of our most capable finance minister and some economists alone, but a socio-economic and politically fundamental question of livelihood & economic freedom for thousands of Namibian families which our Government under the able and politically decisive leadership of our beloved President with Cabinet and civil society input should solve constructively. Such a positive intervention is the essence of a thinking, living and evolving developmental Pan-Africanist State such as Namibia, which in its sovereignty can apply homegrown solutions to its problems other than cut and paste the efficiency model only, neoliberal solutions.

Toady Gurirab
Private citizen

Leave a Reply

Your email address will not be published. Required fields are marked *