Sin tax adds burden on poor
Those in the know say increasing sin taxes does not tax the wealthy, but instead, takes food off the table in poor homes.
A number of commentators warn that with the widespread use of alcohol and tobacco in both poor and rich communities it is doubtful that raising sin taxes on these items is an effective regulatory tool aimed at combatting poverty and uplifting Namibia's poor communities.
In a recent article by Nampa, finance minister Calle Schlettwein was quoted as saying that in line with the solidarity wealth tax initiative, a number of tax reforms, including higher tax rates for the wealthy and decreased taxes for the low earners, had been implemented.
Nampa wrote that the minister further pointed to the annual raise in sin taxes “as a step in the right direction in achieving maximum yields from the affluent section of the society”.
Schlettwein was quoted saying, “We have also taxed consumables that are mostly used by the affluent… that is luxury goods, alcohol, tobacco and fuels.”
Alcohol rife in poor communities
Unam economics professor Omu Kakujaha-Matundu however warned that “alcohol in our country is the staple diet of the low-income groups. So any increase in price will affect the poor more than the rich.”
He cautioned that raising the prices on alcohol could lead to less money being made available in poor households for other essentials, such as “children's milk or bread,” leading to potential catastrophic impacts for poor families, in the short-term as well as the long-term development for Namibia as a whole.
Namibian police chief, Inspector-General Sebastian Ndeitunga agreed that raising taxes on alcohol or tobacco would impact low-income communities, with potentially harmful consequences.
“Alcohol is major impoverishing activity in Namibia,” he told Namibian Sun, adding that the substance is “abused by the poor and the rich. By everyone”.
He added that one of the ways it impoverishes families is that often those who already have very little money, choose to spend it on alcohol instead of other necessary household goods.
Ndeitunga added that alcohol is a major, if not the largest, contributor to violent crime in Namibia.
Nevertheless, he warned that raising prices alone will not reduce use of alcohol, but said it might be helpful if applied in combination with other strategies, including raised prices.
He said the number-one priority should be to implement strict regulatory controls to restrict accessibility and availability of alcohol, which currently is easily available 24/7.
“I can tell you that even if you tax alcohol, many people will still make sacrifices in order to buy alcohol. Raise taxes, but it should be combined with other solutions where we are not impoverishing people and where they don't destroy themselves.”
Steady income stream
From an economic point of view, Kakujaha-Matundu explained that one of the reasons why authorities “love sin taxes is because of the price inelasticity of demand of alcohol and tobacco. This means that since these are habit-forming substances, even if prices are pushed up by the imposition of tax, the consumer will not substantially opt out. They will more or less consume the same quantities and tax authorities can as such collect more tax.” Sin taxes are “simply a tax used by authorities to raise more revenue,” he argued.
Popular Democratic Movement (PDM) parliament member Nico Smit said it is doubtful “whether the minister is correct in suggesting that the affluent use more consumables such as alcohol, tobacco and fuels than the approximately 50% of the population who are either unemployed and/or live below the breadline.” He argued further that although the affluent “have more money at their disposal, it does not mean they necessarily spend it on such goods,” instead investing it in education, accommodation and other necessities or luxuries.
Like other commentators, Smit questioned whether a tax raise could change drinking and smoking habits among low-income earners, who, for a number of reasons, rely heavily on such goods.
What now?
Kakujaha-Matundu said he agreed that fuel increases would primarily impact higher income communities, despite a majority of low-income earners relying on public transport such as taxis and buses.
“I think the middle and upper income groups consume more fuel than the poor. As it takes forever to increase taxi and bus fares, a small increase in fuel taxes/levies makes sense,” he said.
Smit nevertheless cautioned that a fuel price hike will invariably impact low income Namibians who spend heavily on public transport and good such as paraffin.
Suggestion box
Overall, Kakujaha-Matundu said that options available to government to help the needy through tax reforms, includes strengthening tax administration and compliance, in addition to zero rated items mostly consumed by the poor. Smit agreed that strengthening tax collections should be prioritised.
JANA-MARI SMITH
In a recent article by Nampa, finance minister Calle Schlettwein was quoted as saying that in line with the solidarity wealth tax initiative, a number of tax reforms, including higher tax rates for the wealthy and decreased taxes for the low earners, had been implemented.
Nampa wrote that the minister further pointed to the annual raise in sin taxes “as a step in the right direction in achieving maximum yields from the affluent section of the society”.
Schlettwein was quoted saying, “We have also taxed consumables that are mostly used by the affluent… that is luxury goods, alcohol, tobacco and fuels.”
Alcohol rife in poor communities
Unam economics professor Omu Kakujaha-Matundu however warned that “alcohol in our country is the staple diet of the low-income groups. So any increase in price will affect the poor more than the rich.”
He cautioned that raising the prices on alcohol could lead to less money being made available in poor households for other essentials, such as “children's milk or bread,” leading to potential catastrophic impacts for poor families, in the short-term as well as the long-term development for Namibia as a whole.
Namibian police chief, Inspector-General Sebastian Ndeitunga agreed that raising taxes on alcohol or tobacco would impact low-income communities, with potentially harmful consequences.
“Alcohol is major impoverishing activity in Namibia,” he told Namibian Sun, adding that the substance is “abused by the poor and the rich. By everyone”.
He added that one of the ways it impoverishes families is that often those who already have very little money, choose to spend it on alcohol instead of other necessary household goods.
Ndeitunga added that alcohol is a major, if not the largest, contributor to violent crime in Namibia.
Nevertheless, he warned that raising prices alone will not reduce use of alcohol, but said it might be helpful if applied in combination with other strategies, including raised prices.
He said the number-one priority should be to implement strict regulatory controls to restrict accessibility and availability of alcohol, which currently is easily available 24/7.
“I can tell you that even if you tax alcohol, many people will still make sacrifices in order to buy alcohol. Raise taxes, but it should be combined with other solutions where we are not impoverishing people and where they don't destroy themselves.”
Steady income stream
From an economic point of view, Kakujaha-Matundu explained that one of the reasons why authorities “love sin taxes is because of the price inelasticity of demand of alcohol and tobacco. This means that since these are habit-forming substances, even if prices are pushed up by the imposition of tax, the consumer will not substantially opt out. They will more or less consume the same quantities and tax authorities can as such collect more tax.” Sin taxes are “simply a tax used by authorities to raise more revenue,” he argued.
Popular Democratic Movement (PDM) parliament member Nico Smit said it is doubtful “whether the minister is correct in suggesting that the affluent use more consumables such as alcohol, tobacco and fuels than the approximately 50% of the population who are either unemployed and/or live below the breadline.” He argued further that although the affluent “have more money at their disposal, it does not mean they necessarily spend it on such goods,” instead investing it in education, accommodation and other necessities or luxuries.
Like other commentators, Smit questioned whether a tax raise could change drinking and smoking habits among low-income earners, who, for a number of reasons, rely heavily on such goods.
What now?
Kakujaha-Matundu said he agreed that fuel increases would primarily impact higher income communities, despite a majority of low-income earners relying on public transport such as taxis and buses.
“I think the middle and upper income groups consume more fuel than the poor. As it takes forever to increase taxi and bus fares, a small increase in fuel taxes/levies makes sense,” he said.
Smit nevertheless cautioned that a fuel price hike will invariably impact low income Namibians who spend heavily on public transport and good such as paraffin.
Suggestion box
Overall, Kakujaha-Matundu said that options available to government to help the needy through tax reforms, includes strengthening tax administration and compliance, in addition to zero rated items mostly consumed by the poor. Smit agreed that strengthening tax collections should be prioritised.
JANA-MARI SMITH
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