Small businesses in Namibia will be hardest hit by the dividend tax introduced by Finance Minister Calle Schlettwein in last week’s Budget.
VAT on the income of listed asset managers and the dividend tax will cause pain in particular for Namibia’s small businesses and investors respectively– economists thus cautioned that the new taxes could further place financial strain on ordinary Namibians.
Observers feel Schlettwein’s decision to introduce a dividend tax across the board was not well thought through and cautioned that it has the potential stifle and subsequently annihilate small businesses.
“Tackle commercial banks head on.”
That’s the view of local economist Salomo Hei who says “government should not be afraid to introduce legislation that expands its revenue base”.
Hei is of the view that Treasury was supposed to target big firms directly as far as dividend tax is concerned.
“The small businesses are already over-burdened because they pay VAT on any activity they undertake, that is of course on top of Income Tax and now you add a dividend tax. Small business owners will surely review their cost structures which might result in job losses,” he cautioned.
Schlettwein last week announced the introduction a dividend tax for dividends paid to residents to enhance the fairness of the tax system as well as an introduction of VAT on the income of listed asset managers.
The tax proposals for national revenue purposes are anticipated to generate about N$500 million. Income tax changes will come into effect in 2019 after drafting and tabling of the specific tax proposals. Excise duties will become effective upon the tabling and gazetting of the schedules.
Hei said the banking and insurance sector should be targeted.
“Those who say multinationals will leave the country if certain taxes are introduced are wrong, most of the big commercial banks are here for the long term and they are still in Namibia because they continue to make money. There is nothing wrong with government attempting to collect more revenue, because it basically runs the economy,” said Hei.
Hei lamented the fact that government has over the years created a conducive environment for the private sector to flourish, yet investments from the private sector continues to be minimal.
“That is why these commercial banks can make millions in profit, the environment is sound. Government gives tenders to local companies who in turn go to banks for funding, it just shows that government is running the economy and therefore has every right to demand more revenue,” he said. He added: “If a bank has more money it ought to relax certain funding application criteria and also give back to the national kitty, but this is not happening in Namibia. Most of the commercial banks are guilty of repatriating money to South Africa.”
Hei also blamed the practice of multinational banks sending money to South Africa for the liquidity strain in the country.
“Government made money from bonds in the past but that has changed, this is all a consequence of the ratings downgrades that have taken place. As we all know, limited private sector investments also contributed to the downgrades,” he said.
Hei also took a swipe at financial firms that dragged NamibRe to court over re-insurance.
The provisions of the Namibia National Reinsurance Act of 1998 have faced stiff criticism and legal challenge from the insurance industry players who feel the mandatory cessions have stifled business growth.
At the moment, 12 insurance companies are being heard by the Windhoek High Court, in a case against the Finance Ministry, to have sections 39, 40 and 43 of the Namibia National Reinsurance Act of 1998 declared unconstitutional and null and void. The National Reinsurance Act stipulates a mandatory cession to NamibRe – a wholly owned government agent enforcing the Act – of a portion of all insurance and reinsurance premiums written in Namibia. Hei said some of the firms that are crying foul over reinsurance in Namibia are complying with the same legal requirements in South Africa. “These big insurance companies are also involved in money repatriation. The mandatory cessions are normal global practices which stipulates that insurance companies need reinsurance,” he said.
Hei indicated that if NamibRe is strengthened, it could generate enough revenue to pay dividends to the State.