Thoughts on the National Budget 2019/20
10 April 2019 | Business
Limit the deductibility of fees and interest for income tax if no WHT has been paid
We understand that the rationale for this as we are aware that taxpayers are not paying over withholding tax (WHT) where due.
It is important that the proposed legislation would take into account the relief provided under double taxation treaties and that the deduction of the fees and interest would not be disallowed where double taxation relief is available, as this would be very unfair towards the taxpayer.
Deductions allowed on pensions and annuity funds
The proposal is to increase the maximum deduction threshold from N$40 000 per tax year to a 27.5% of income, limited to N$150 000 per tax year.
This is a welcome change to help taxpayers make provision for their retirement. We hope that regular increases to this threshold will take place.
Taxing charitable institutions
Our concern is that charitable, religious and educational institutions would become taxable on commercial activities that they are undertaking solely to support their main objective.
We have no problem that where there are institution abuse, their status in order to generate profit for personal gain should be stopped, but we do believe that a lot of institutions are not operating with this intention and merely act to further their main objective of solving important societal issues which sometimes are not addressed by government.
Dividends tax
The introduction of a 10% tax on dividends would reduce the return on investments for a lot of taxpayers.
This would have a negative impact on investments and taxpayers may choose to invest their money offshore as their return is now further reduced while investing in Namibian products.
One has to remember that for most investments made in unit trusts, there is a portfolio that does consist of equity (yielding dividends) and interest-bearing instruments. Thus the return in these unit trusts would become less when there is a withholding tax on dividends and in the end the individual taxpayer investing his/her hard-earned money would end up receiving less than before.
Basis of taxation
Subjecting foreign income of Namibian residents to tax would add a lot of administrative burden to the operations of Inland Revenue.
It has to be noted as well that Namibia has concluded a number of double taxation treaties with other countries. In terms of these treaties there are certain incomes that Namibia would still not be able to tax even if this change is brought about.
Repeal of EPZ and manufacturing incentives
We understand that there has been pressure from the European Union (EU) on Namibia with regards to these incentives.
We therefore understand that there is a need to abolish some of these. We are looking forward to see what the proposed Special Economic Zone will bring in terms of incentives to the taxpayer.
Under Vision 2030 and the Harambee Prosperity Plan, manufacturing is instrumental in how we want to change our economy. It is therefore of utmost importance that there will be sufficient investment and tax incentives to ensure that we draw additional investment into our economy.
The current manufacturing incentives offered has a big criticism in that it takes a substantial amount of effort and time to get such approvals from the various ministries involved and therefore has resulted in the investment into these sectors not being forthcoming.
Non-deductibility of royalties
We are very concerned that this will have a detrimental effect on the viability of existing and proposed operations of the mining industry in Namibia.
The industries are already under pressure and the financial models are cost-sensitive. Imposing additional taxes in the form of disallowing the deductibility of the royalty payments could result in unwanted consequences for the economy in the form of loss of jobs and withdrawal of investment from the country.
Taxing of trusts
We do recognise that there are structures that have been abused when it comes to tax planning by making use of trusts.
We do however encourage that the changes to the legislation makes a distinction between business/trading trusts and other trusts.
One of the main reasons for setting up a trust is for the founder to divest control over assets and to protect his/her assets on a long-term basis.
Careful consideration should also be given to how a “bewind” trust would be taxed as this is one of the investment vehicles used by the Government Institutions Pension Fund (GIPF) to investment pension funds of government employees.
Chantell Husselmann is a tax leader at PwC Namibia. Contact her at [email protected]
We understand that the rationale for this as we are aware that taxpayers are not paying over withholding tax (WHT) where due.
It is important that the proposed legislation would take into account the relief provided under double taxation treaties and that the deduction of the fees and interest would not be disallowed where double taxation relief is available, as this would be very unfair towards the taxpayer.
Deductions allowed on pensions and annuity funds
The proposal is to increase the maximum deduction threshold from N$40 000 per tax year to a 27.5% of income, limited to N$150 000 per tax year.
This is a welcome change to help taxpayers make provision for their retirement. We hope that regular increases to this threshold will take place.
Taxing charitable institutions
Our concern is that charitable, religious and educational institutions would become taxable on commercial activities that they are undertaking solely to support their main objective.
We have no problem that where there are institution abuse, their status in order to generate profit for personal gain should be stopped, but we do believe that a lot of institutions are not operating with this intention and merely act to further their main objective of solving important societal issues which sometimes are not addressed by government.
Dividends tax
The introduction of a 10% tax on dividends would reduce the return on investments for a lot of taxpayers.
This would have a negative impact on investments and taxpayers may choose to invest their money offshore as their return is now further reduced while investing in Namibian products.
One has to remember that for most investments made in unit trusts, there is a portfolio that does consist of equity (yielding dividends) and interest-bearing instruments. Thus the return in these unit trusts would become less when there is a withholding tax on dividends and in the end the individual taxpayer investing his/her hard-earned money would end up receiving less than before.
Basis of taxation
Subjecting foreign income of Namibian residents to tax would add a lot of administrative burden to the operations of Inland Revenue.
It has to be noted as well that Namibia has concluded a number of double taxation treaties with other countries. In terms of these treaties there are certain incomes that Namibia would still not be able to tax even if this change is brought about.
Repeal of EPZ and manufacturing incentives
We understand that there has been pressure from the European Union (EU) on Namibia with regards to these incentives.
We therefore understand that there is a need to abolish some of these. We are looking forward to see what the proposed Special Economic Zone will bring in terms of incentives to the taxpayer.
Under Vision 2030 and the Harambee Prosperity Plan, manufacturing is instrumental in how we want to change our economy. It is therefore of utmost importance that there will be sufficient investment and tax incentives to ensure that we draw additional investment into our economy.
The current manufacturing incentives offered has a big criticism in that it takes a substantial amount of effort and time to get such approvals from the various ministries involved and therefore has resulted in the investment into these sectors not being forthcoming.
Non-deductibility of royalties
We are very concerned that this will have a detrimental effect on the viability of existing and proposed operations of the mining industry in Namibia.
The industries are already under pressure and the financial models are cost-sensitive. Imposing additional taxes in the form of disallowing the deductibility of the royalty payments could result in unwanted consequences for the economy in the form of loss of jobs and withdrawal of investment from the country.
Taxing of trusts
We do recognise that there are structures that have been abused when it comes to tax planning by making use of trusts.
We do however encourage that the changes to the legislation makes a distinction between business/trading trusts and other trusts.
One of the main reasons for setting up a trust is for the founder to divest control over assets and to protect his/her assets on a long-term basis.
Careful consideration should also be given to how a “bewind” trust would be taxed as this is one of the investment vehicles used by the Government Institutions Pension Fund (GIPF) to investment pension funds of government employees.
Chantell Husselmann is a tax leader at PwC Namibia. Contact her at [email protected]
Classifieds