Taxman targets kapana
Hair salon, taxi and bus owners, as well as hawkers, plumbers and kapana sellers, are being targeted on the presumption that they earn more than N$50 000 a year.
11 July 2018 | Ministries
This follows the finance ministry's announcement, via a pamphlet campaign, that informal traders must honour their tax obligations or face the consequences. The pamphlet warns explicitly that hair salons, whether operated in a city centre, town, informal market, incubator centre or at home, are subject to tax. The same applies to taxi and bus transport businesses, as well as hawkers, whether they sell their products door to door, at an open market, on the side of the road, under a tree, in a neighbourhood or from the boot of a car. “Plumbing services, if you have people who call you to fix their broken taps and pipes for a fee, record such income and pay tax. Kapana sellers, if you roast meat and sell it, you are required to pay tax on such income,” the pamphlet reads further.
Inland Revenue commissioner Justus Mwafonge said the N$50 000 threshold was not new, as individuals who earn more than that per annum are in any case required to pay taxes.
“This is nothing new. Informal traders have always been taxed. It will all depend on how the business is registered. This is nothing new,” Mwafonge said.
According to him, this was also the ministry's way of informing taxpayers, while educating them about their tax responsibilities.
“We are just trying to simplify things.” There was also a possibility that the finance ministry would soon introduce a presumptive tax regime. According to Mwafonge, a lot of work still needs to be done before it is implemented.
“Presumptive tax is still a work in progress.” Presumptive taxation is a form of assessing tax liability using indirect methods such as income reconstruction or by applying baseline taxation across the entire tax base. It is charged for business operators who do not keep proper books of accounts. The tax mainly targets small-scale traders such as transport operators and vendors, kapana sellers and fruit and vegetable hawkers, among others, who all fall under the informal sector.
In terms of the current legislation, section 68 of the Income Tax Act contains provisions that when applied attain objectives comparable to those of a presumptive tax regime.
This section empowers the minister of finance or a delegated officer to raise estimated assessments in cases where taxpayers failed to provide necessary financial information, which is basically an act of presuming one's income. Government first mooted the idea of a presumptive tax regime when then finance minister and current Prime Minister Saara Kuugongelwa-Amadhila tabled the 2014/15 national budget.
The incumbent, Calle Schlettwein, has maintained the introduction of presumptive tax regime would be an attempt to broaden the tax net. According to him, the measure is also not punitive. Windhoek-based seamstress, Racheal Kaiyamo-Hango said the introduction of the presumptive tax was not a good move. “It is unfair because our turnover is not even that much. We don't even make enough to pay tax,” she said. According to her, the introduction of the tax would have been welcome if government helped small and medium-sized enterprises by giving them more business. “There are a lot of things that government can do to step in and help, like ensuring that local businesses make uniforms for school children as an example,” Kaiyamo-Hango said. “They must give us tenders so that our income goes up,” she said.
Another informal market trader, Tjihapa Havarua, who plies his trade as a cook at the Herero Mall market in central Katutura said the introduction of the presumptive tax was not a good idea.
“I do not see this working. Our businesses are even situated in the open… we are struggling. There are even no customers,” he said.
He said informal traders were contributing meaningfully to the economy, as they pay value-added tax (VAT) when they shop for their supplies.
“I don't see why we should pay a presumptive tax. We pay tax on goods we buy from supermarkets already,” Havarua said.
A local welder, Andrew Kasiona, welcomed the introduction of the tax saying it would help a “broke” government.
“It is not such a bad thing. The rent that we pay is also not a lot, so we can pay tax. Government will not be broke again,” Kasiona said.
Danny Meyer, the director of SMEs Compete, said government has alluded to the introduction of a presumptive tax for some time now, viewing it as a strategy to broaden tax collection.
“For example, for hairdressers, taxis, micro butcheries, food vendors, tuck shops, shebeens and school uniform, traditional attire and other garment makers, shoemakers and cobblers, among others. And even service providers such as a roadside carpenters, welders, tyre repairers, plumbers, stove and fridge repairers or builders.”
He said government will then apply this predetermined baseline taxation to all entrepreneurs and micro or small enterprises, which are engaged in the informal business sector.
“In short, it is a strategy by government to collect more revenue. To tax those operating a micro or small enterprise in the informal sector, but not paying tax against profit generated, as they would have done if their business was a registered entity operating in the formal sector.
“Although there might be a strong case for the introduction of a presumptive tax to capture income that frequently escapes conventional taxation, in a limping economy the introduction might be ill-timed. Many who have lost jobs and those who just cannot secure employment, are conducting some form of business activity in an informal manner, as a way to make ends meet. Others do this to feed their family and contribute towards the needs of an extended family,” Meyer said.
“To increase revenue collection, a wiser move at this time, might be to swiftly improve revenue collection efficiency. To close the net on tax dodgers, by hastening the launch of that proposed semi-autonomous revenue collection agency.”
Independent economist Klaus Schade said while the idea was a notable one, he cautioned the collection of these taxes could be an expensive exercise on the side of government.
“The administrative costs, however, to rake in additional revenue could be relatively high, since staff from the receiver of revenue have to identify and visit these businesses and spend some time on estimating the turnover and profit that is often not backed by any records,” said Schade.
Another concern was that of corruption, Schade said.
“There is also the risk of corruption, since the presumptive tax is usually not based on any paper trails or records, but on estimates, and hence it depends on the individual judgement of the official.”