Informal sector taxes off the table
11 November 2019 | Economics
Tax commissioner Justus Mwafongwe shed some light on the issue of presumptive tax in an interview with Namibian Sun.
While the idea seemed favourable to Treasury at one point in time, a feasibility study showed otherwise.
“Presumptive tax is something we wanted to introduce for these small businesses but we actually did not continue with that because at the time the feasibility study that we conducted was a bit difficult to implement at the time,” said Mwafongwe.
The introduction of the planned tax would also hamper any opportunities to collect taxes effectively and affordably on the part of Treasury, Mwafongwe elaborated.
“The minister has also announced that there will be an investigation of looking at the possibility of introducing a specific rate for smaller businesses. Not necessarily a presumptive tax regime.
“A presumptive tax regime comes with its requirements and it can also be burdensome for small business because what you are saying is that, just take the turnover [of a business], this is the rate, and you have no opportunity as a business person to, for example, claim the expenses, so that is the negative side of presumptive tax.
“To address that you can have a rebuttable presumptive tax where, if the taxpayer is not happy, he can actually lodge an appeal, you can't tax me based on my turnover, I have my financial statements, which state I made a loss so you were not supposed to tax me.”
The ministry also feared that it would bring about possible tax disputes between taxpayers and customs and excise, one thing the ministry was keen to avoid.
“It could be a system that could bring cumbersome procedures and prolonged disputes between us [customs and excise] and the taxpayer so one needs to be careful before implementing such a system so that is why we will start an investigation of having a reduced rate for small businesses as it was announced by the minister,” he said.
Treasury also felt that the income it would have raised would not have justified the introduction of the tax on the informal sector of the economy.
“The revenue that would have been yielded out of that was really not significant at the time. What we have done, instead of introducing a full-fledged presumptive tax, we actually strengthened our enforcement mechanisms and the amendments that are on the table at the moment, that have been processed include these enforcement mechanisms,” he said.
Mwafongwe warned that those operating in the informal sector and dodging tax would, if found, be penalised severely for failing to register as taxpayers.
“We have included penalty provisions which were not really clear in the Act at the moment. What we are saying is that there will be some severe penalties for those who are eligible to register as taxpayers but have not.
“One needs to be careful because there are people operating in the informal sector, who may not be small … people that are hiding, pretending to be small businesses but that are actually big.
“You need to think of the equalising of the provision so that you do not include these big people and all of a sudden they are paying a lower rate but these are actually millionaires that are operating in the informal sector.”