WINDHOEK - Persons receiving a pension or annuities from pension funds, as a result of retirement or death, are liable to pay income taxes if the money received exceeds the annual income tax threshold of N$40,000 per annum.

Such benefits could also increase the tax bracket for employed people, even though the benefits received are lower than the annual income of N$40,000.  This is because the taxman calculates all income in the year to determine the deductible income tax owed, said Ministry of Finance spokesperson Aldrin Manyando, regarding recent newspaper reports about a widow and a teacher, whose income tax bills have ballooned since she started receiving the husband’s death benefits.

“The death benefit pension is specifically included as part of gross income under the Income Tax Act and is taxable in the hands of the person receiving such pension,” said Manyando.

He explained that upon the passing on of a person, such person’s income tax file will be registered as an estate file, upon the presentation of a death certificate by the executor or family members of the deceased, and the income tax file, or now the estate file, will only be closed if all taxes are paid.

The Namibia tax system follows a progressive tax rate system with tax rates ranging from 27 percent to 37 percent. A progressive tax rate system reduces income inequality and has an income redistribution effect, and this system means that a person with more income pays a higher percentage of that income in tax than those with lesser incomes.

An individual is taxed on his or her total income received for the year. This also means that when a person receives income from two or more sources, these two incomes are added together to determine the final tax liability of the tax payer for a given tax year.  

“The progressive tax rates may cause a person receiving income from two sources to fall within a higher tax category, which is the case of the taxpayer concerned,” said Manyando.