Tax, EPZ changes nail manufactures

The amendments will deter investors in manufacturing which will leave Namibia vulnerable as a net-importer.

10 July 2020 | Business

We thus hope that the authorities continue to engage before the actual expiry date of the incentives. - Bärbel Kirchner, Account director: Team Namibia

Staff Reporter – Current manufacturing incentives which have been repealed and the phasing out of the Economic Processing Zone are “drastic” changes which will hurt Namibia’s competitiveness.

“In a year’s time, Namibian manufacturing businesses will be taxed at the normal rate (32%), whereas in neighbouring Botswana and in South Africa, manufacturing business will be taxed only 15% and 28%, respectively. In South Africa, there are additional manufacturing incentives,” the account director of Team Namibia, Bärbel Kirchner, says.

Team Namibia reacted on the recently gazetted amendments of the Income Tax Act, which repealed the current manufacturing incentives, and the Economic Processing Zone (EPZ) which will be phased out by 28 February 2021.

The ministry of finance argued that these changes needed to be made, partially to avoid black-listing by the European Union (EU) countries, and partially – it was argued – that the manufacturing incentive and the EPZ saw little return of investment, Team Namibia says.

“However, considering current economic development, where Namibia has a low manufacturing base, and is it largely dependent on imports, the country will remain hugely vulnerable,” Kirchner says.

This is especially so when its exports – predominantly minerals and other commodities – are extremely sensitive to demand and price fluctuations, she adds.

‘Critically important’

Local manufacturing and industrialisation is critically important should Namibia wish to become more self-reliant and less exposed to changes in global demand and supply chains, Kirchner maintains.

“Now that the repeal of the manufacturing incentives is imminent, the question is how attractive Namibia is for potential investors, in particular in the manufacturing sector. When compared to alternative investment destinations, this drastic change will result in Namibia being less competitive,” she says.

Team Namibia believes that the manufacturing sector has a huge potential for job creation, which is vitally important considering that the unemployment is at an unprecedented all-time high.

“However, with the amendments to the income tax legislation, Namibia is less likely to attract investment for new plants, or the extension of existing plants,” Kirchner says.

She continues: “It is such a pity that this now indeed has happened.

“Our members had hoped that considering the current economic environment that this drastic measures would not have taken place, and that one would have engaged in further consultation. Extensive investments and expansion took place in the past due to manufacturing status businesses had, and related incentives,” Kirchner says.

Team Namibia is totally in support of the manufacturing sector.

“We need more local produce and manufactured products for our sustainable economic development and most importantly, job creation and the reduction of poverty,” according to Kirchner.

“We thus hope that the authorities continue to engage before the actual expiry date of the incentives. At the very least, it would be critical to look at best options to make good for the loss of incentives.”

Alternative incentives

Kirchner says it is “critical that Namibia works toward positioning itself as a superior business location and makes every efforts to create an exceptional environment for economic activity. Pro-business policies are critical if Namibia wants to revive its economy and reduces its vulnerability”.

Alternatives would be to look at performance-based incentives that however would still contribute to a reduction of start-up, as well as operational costs, she says.

In addition, it might be necessary to conduct some research and look at the correlation of various incentives and the different effects on the performance of businesses in the sector.

“A comparative study of ‘peer countries’ would also help to identify which incentives would secure the best return-of-investments, and optimally contribute to the growth of the manufacturing sector and the economy at large,” Kirchner says.

“With a very disappointing speculative BB Fitch rating and an economy on the edge of an abyss, Namibia drastically needs to improve its appeal to domestic and foreign investors,” she concludes.

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