Namibians hoping government would have a change of heart by abolishing the proposed solidarity tax and, instead, explore avenues for tax in the informal sector – among other alternatives – are daydreaming, analysts said.
Finance Minister Calle Schlettwein is expected to deliver his budget speech this Thursday [February 25], which in all likelihood would include details regarding the proposed solidarity tax.
Speaking in Windhoek on Thursday last week, Schlettwein stressed that government is definitely going ahead with its solidarity tax plans for it to afford rolling out more social safety nets, as a first line of defence against poverty.
“We conceive of a solidarity tax to imply that those who have reasonable means of income should contribute to the fight against poverty and for the welfare of the poor,” Schlettwein said at an event organised by the Friedrich Ebert Stiftung last week.
It is expected that during his budget speech the minister will provide details such as the income threshold above which earners would be subjected to the new tax. Treasury has in recent years flirted with the idea of introducing presumptive taxes on small enterprises, but the modalities of putting that into practice seemed to be a huge bottleneck.
President Hage Geingob wants a solidarity tax to form part of his war chest against poverty, an announcement that sent Namibians’ tongues wagging last year. Geingob faces the challenge of finding sustainable alternative sources of fiscal revenue to give his poverty war the necessary firepower – in the face of growth challenges which include declining SACU revenues and demand for infrastructure spending.
The aftermath of the announcement of a solidarity tax set off an avalanche of proposed alternatives, with some urging government to slap taxes on sections of the informal sector to fill voids in Treasury’s purse.
That suggestion, as tempting to the tax authorities as it could be, would not stand the test of technical and implementation challenges, analysts warned. In fact, Johannes !Gawaxab, touted once to be President Geingob’s preferred candidate for the finance minister’s portfolio, urged government to actually not at all entertain the idea of taxing actors in the informal economy. He said doing so would be a “misplaced” intervention.
“Yes, industries like the taxis and bars are potential sources of revenue for the government, but taxing these would, in my opinion, be misplaced. Public transport is almost non-existent and taxing taxis would be wrong because it is the role of government to ensure we have an effective and affordable public transport system,” the former MD of Old Mutual African Operations said.
“Taxis allow so many Namibians to get from point A to B and they fuel the wheels of the economy. In the absence of a well-functioning public transport system, we need to ensure that what we have is regulated.”
“The most important and immediate concern with the taxi industry is the safety of passengers, reducing the numbers of accidents they cause and adhering to traffic rules,” he said.
Gawaxab, now executive chairman of Eos Capital, says government should broaden the tax net by starting to tax professional firms which are raking in millions of dollars but fall outside the tax net. “We should go after them and include them. Closing transfer pricing loopholes can surely deliver millions in tax revenue,” he told New Era.
Director of research and securities at Simonis Storm, Purvance Heuer, says Namibia ought to be careful when pondering the idea of taxing the so-called untaxed industries in the country.
“It is important to note that, to a greater extent, the informal sector focuses more on ‘consumption’, which is an important driver of economic growth,” he said. “On that basis it is also important to note that these industries are not entirely untaxed. Their incomes may not be taxed, but their consumption is taxed through VAT.” He raised fears that workers in the informal sector may struggle to survive in a formally regulated mainstream economy, which could include job losses.
Instead of subjecting them to tax requirements, informal sector businesses must instead be compelled to follow the strict requirements of the country’s labour laws.