As tax evasion threaten Namibia-China relationship
There are up to 7000 self-employed Chinese businessmen in Namibia and over 60 enterprises, according to the Chinese Embassy in Namibia.
The number comes after consultancy firm McKinsey indicated in July that up to 10 000 Chinese businesses may be active in Africa, dwarfing previous estimates.
Treasury has over the past years discovered that paying taxes has become an eluded responsibility and it is no surprise that several Chinese owned businesses often face accusations of extensively practicing tax avoidance and tax evasion in the country.
In fact, Treasury is in possession of evidence that shows how some Chinese businesses operate on a cash basis with the deliberate aim not to pay tax.
Government has lost billions over the years through tax avoidance and transfer pricing practices by multinational companies who have find ways to evade the Namibian tax authorities.
Chinese businesses in Namibia are involved in agriculture and they also have a significant presence in services, trade, and construction and real estate.
Zhang Yiming, Chinese Ambassador to Namibia, described Namibia and China’s economic and trade cooperation as “a fast expanding one.”
“Since the establishment of diplomatic ties 27 years ago, our economic and trade cooperation has been expanding fast. There are now 60 Chinese enterprises and nearly 7 000 self-employed businessmen in Namibia, covering a lot of fields. The Chinese shops are all over the country. They have made irreplaceable contributions to economic construction and improvement of ordinary people’s living standards. Their dedication and hard work should be affirmed and respected,” he said at a Tax Law lecture held in the capital earlier this week that was aimed at educating the Chinese business community on Namibian tax regulations.
Yiming urged Chinese businessmen operating in Namibia to comply with the country’s tax laws.
“China will never tolerate law offenders. We will continue to promote education campaign among Chinese citizens to raise their awareness of law-abiding. At the same time, China hopes that Namibian Government could safeguard the legitimate rights and interests of most Chinese enterprises and personnel that run their business legally.” he said.
Yiming said the case of some Chinese businessmen investigated for their involvement in tax violations has aroused great concern from all parties since the end of last year and that the issue of non-standard taxation exists in Namibia for a long time where some Chinese enterprises and individuals are actually involved.
“However to solve such problems, we must not only point at taxpayers we must adopt a stick-and-kill approach by safeguarding the traditional friendship between China and Namibia, and avoid exaggerating or politicizing individual cases” said Yiming.
He further added that China fully understands Namibia’s efforts to solve the problems and firmly cooperates with Namibia in fighting against money laundering and tax offenses in accordance with the countries law.
Minister of Finance, Calle Schlettwein called on Chinese businesses to fulfil their tax obligations.
The Namibian tax system is a source based tax system that is not concerned with whether a taxpayer is resident, but it rather looks at the place where income has been earned such as the source which means that non-residents employed in Namibia, or a foreign company trading within Namibia, all are liable to pay taxes on income earned within Namibia as well as Value Added Tax (VAT).
Residents and non-residents earning Namibian sourced income are subject to income tax. Registered Manufacturers pay tax at a rate of 18%, non-manufacturing corporates pay at 32%. Mining Companies, excluding those mining diamonds, pay tax at 37, 5%. The tax rate for diamond mining is 55%.
Chinese nationals have in recent years been the subject of discussion, with many facing claims of deliberate tax avoidance. A multibillion dollar tax case is currently in the courts involving businessman Jack Huang.
“Some businesses are in partnership with Namibians and through such partnerships tax obligations are seriously neglected and are sometimes even fraudulently done,” said Schlettwein at the lecture that was attended by the local Chinese business community.
The minister pointed out that not all Chinese nationals who fail to pay their taxes do so deliberately because “some of them genuinely do not know the processes”.
Schlettwein explained that tax avoidance occurs to such an extent that businesses do not maintain proper bookkeeping and at other times do not render sales receipts to their clients.
He further explained that multinational companies misuse their international operations to avoid tax in some tax jurisdictions and shift their profits into tax havens which is usually through transfer pricing, profit shifting, thin capitalization, and several other evasion and avoidance schemes.
“Double tax avoidance arrangements between countries are often the basis for such arrangements. The recent leaked “Paradise Paper”, but also the “Panama Papers” and our own law suit against customs fraud are examples” he said.
Schlettwein appealed to the Chinese embassy to not cooperate with those who solicit bribes, but to report them as is important for their integrity and their own interest and for the mutual beneficial ties between Namibia and China.
China in Africa
In an investigation of eight African countries, detailed in new report by Mckinsey titled ‘Dance of the Lions and Dragons’, researchers found that the number of Chinese-owned firms was between double and nine-times the number registered by China’s Ministry of Commerce.
Around 90% of the firms are privately owned, a rebuke to the common narrative that many enterprises active in Africa are backed by the Chinese state. Extrapolating the numbers to the entire continent, McKinsey estimates that some 10,000 enterprises already employ ‘millions’ of Africans, given that 89% of employees at the 1000 businesses polled are local.
Two-thirds of those businesses offer skills training to their staff, suggesting that Chinese firms are cultivating a long-term interest on the continent. The report’s authors concluded that China’s engagement with the continent is a ‘strong net positive’ for Africa’s economies, governments and workers.
The report found that Chinese financial flows to Africa are around 15% larger than official figures suggest when non-traditional flows are included. 74% of Chinese firms said that they feel optimistic about their future on the continent.