…as Treasury eyes additional N$500 million through tax
The days of churches making money through commercial activities without paying tax are over.
Several churches have been running commercial activities such as renting out properties over the years without paying any taxes.
Finance Minister Calle Schlettwein while tabled his Budget Speech this week said income derived from commercial activities by charitable, religious, educational and other types of institutions under Section 16 of the Income Tax Act to normal corporate tax.
Such institutions will be required to register as taxpayers and file annual income tax returns, said Schlettwein.
The tax proposals include repealing the Export Processing Zone Act and introduce Special Economic Zones.
There is also a proposal to introduce a 10% dividend tax for dividends paid to residents to enhance the fairness of the tax systems.
Listed asset managers have also been targeted, they will from now on be compelled to pay Value Added Tax(VAT). The income of listed asset managers will become subject to VAT at 15%.
VAT will also be introduced on proceeds on sale of shares or membership in any company largely owning commercial immovable property.
Treasury will also move to deepen the current hybrid tax system by taxing all income earned from foreign sources.
Schlettwein proposed for the re-adjustment of the current tax brackets for Individual Income Tax, to reduce the lower bracket tax rate from 18 percent to 17 percent and introduce new tax rates of 39 percent and 40 percent for individuals earning over N$1.5 million and N$2.5 million respectively.
According to the minister, the proposal seeks to relieve the low income earners and reinforce the progressivity of the tax system.
The minister announced the tax proposals stating he expects these changes to generate about N$500 million annually in additional revenue to support the implementation of the fiscal adjustment phase.
Schlettwein also stressed the importance of bringing down debt levels.
Decreasing the budget deficit was flagged by ratings agencies as vital if Namibia wants to stave off another round of sovereign debt downgrades.
While mentioning that the economy is in recovery mode, Schlettwein said non-core expenditure reduction and the moratorium on non-productive capital projects such as construction of office blocks have been implemented and remain critical for the fiscal consolidation measures to free up resources for reallocation to best productive alternative uses.
“As we align spending to growth enhancing priorities, funding for the adjustment process and the engines of growth requires the contribution of all corporate citizens,” he said.
Opposition parties said the Budget was particularly vague on plans to stimulate employment, pointing out that only five government departments seem to have job creation targets.
This is despite the fact that “the President correctly said we need to have a plan to create jobs for every sector of the economy”.
With regards to employment, however, the announcement of five tax proposals by Schlettwein was hailed as a positive move.
Namibia’s informal sector which is estimated to be worth millions, has also been included in the national tax net.
“Non-core expenditure will be kept at the minimum level to support continuation of frontline services across all O/M/As, with the moratorium on construction of new office blocks holding firm over the MTEF.
To date non-core operational spending has been reduced by about 73 percent since FY2015/16, which allowed for redirecting resources to productive expenditure and the development budget,” he said.
Schlettwein said the measures needs to be extended to the entire public sector across public enterprises and subnational governments. He also added that transfers to Public Enterprises will be targeted at specific productive expenditure programmes and the perpetual bail-out cannot continue ad infinitum.
“In efficient and unsustainable enterprises should be shed in part or entirety.
An assessment of the viability and the business model of many Public Enterprises needs to be carried out and a plan of action designed on how best the State can realize net economic gains from its instead of net losses as at present, at 50 percent of revenue,” he said.
Schlettwein reiterated that the country’s public sector wage bill is one of the highest in the world and it is driven by the size of personnel and above inflation wage adjustments.
“Such high ratio of wage expenditure crowds out other operational activities and has become increasingly unsustainable. Effective measures should be instituted to reduce the wage bill and wage related expenditures in partnership with all social partners.”
He added: “Measures will be instituted at Vote level to bring down the share of the wage bill from 16 percent of GDP to about 12 percent of GDP over the next five years through a combination of natural attrition, lower-than-CPI wage adjustments and vacancy replacement rule.
These measures need to be extended to the public service sector, especially those which perpetually depend on Government budgetary transfer.