Govt will pay, says Schlettwein… But construction industry owes N$1.45 billion in tax arrears

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Windhoek

Finance minister Calle Schlettwein has assured the private sector that government will pay for services rendered but said the deadline of December 15, set by the Construction Industries Federation goes against the “consultative spirit” in which government has engaged the federation.

The federation issued a statement on Wednesday asking government to pay outstanding invoices of more than N$1 billion owed to 115 companies, by December 15.

Schlettwein also noted that key players in the construction sector owe government as much as N$300 million in assessed principal tax or some N$1.45 billion in accumulated tax arrears.

These tax arrears, most of which were accumulated during previous years of robust growth for the industry, represent overdue revenue for government that, were they paid in good time, would have resulted in a less precarious situation of public finances and could have been utilised to settle some of the outstanding invoices as well as provide increased services to the public.

“We have had consultation with the Construction Industries Federation at which government has communicated its plans for meeting the payments,” the minister said.

“Immediate settling of some of the invoices through the Road Fund Administration and continued payments over the budget year have already commenced and are a reflection of honouring the payment plans in the spirit of our consultation. However, the demand by the Federation for government to pay by 15 December 2016, as announced in the Federation’s press statement, is however contrary to the consultative spirit within which the government and the

Construction Industries Federation have engaged,” said Schlettwein yesterday during a media briefing.
The finance minister assured service providers from various industry sub-sectors that government is committed to meeting its contractual obligations for services rendered.

He cautioned, however, that this commitment should be seen against the backdrop of budget revenue flows and tight liquidity conditions which government has to contend with to be able to fund bulk invoices.

“Let me also assure the service providers that the revised budget for 2017/16 is fully funded, with funding smoothly spread out over the financial year,” the former trade minister said.

“Amidst tight liquidity conditions, we have been able to raise the necessary funding for the revised budget deficit through a combination of revenue and also normal and special paid and bid auctions at market-related rates. We have also widened spreads on new government bond uptake to accommodate higher market risks,” said Schlettwein.

He added that government has crafted a strategy for funding the outstanding invoices to date. The activities for implementing the strategy and the processing of some of the invoices has already kicked off at an accelerated pace, in addition to ongoing budget income-based payment of invoices.

Invoices which fall within the revised budget expenditure ceilings continue to be funded with budget income in line with revenue flow and the borrowing plan.

Schlettwein continued that the bulk of invoices are from the road sector, particularly from the Road Fund Administration (RFA), which through government-wide coordination has also stepped up efforts to accelerate the payment of some invoices from the road sector, in addition to the projects funded under its budget (executed by the Roads Authority).

“As such, the RFA has already started with the payment of invoices of up to N$318 million from its accumulated cash reserves. This amount would rise to as much as N$450 million with appropriate adjustment on the non-priority or uncommitted expenditure on the Roads Authority budget that is financed by RFA,” said Schlettwein.

He noted that the amount to be released from the RFA does not completely deplete the reserves of the Fund and it is done within the provisions of the Road Fund Administration Act, which provides for the defrayal of expenditure in the road sector.

“That said, it is a matter of grave concern to note that contracts and resulting invoices to the tune of N$800 million have been committed over and above what has been appropriated in this year’s budget, most of which are contracts in the road sector.”

“From both the Appropriation Act and State Finance Act point of view – such over-committing of the national budget … is not only illegal, but an act of complete lack of financial discipline. We shall not shy away from invoking sections 11 and 17 of the State Finance Act, which provide for recovering losses caused to the state by contravening the law,” warned Schlettwein.

“We have learnt of contractual awards made by public enterprises such as the Roads Authority, which are over and above the budgetary provisions, thus committing the government to payments not budgeted for. At the same time, spending overtures such as those for entertainment parties are being incurred by the same institution, while the need to cut non-priority spending to free up money for settling contractor invoices go unattended. This is an urgent matter which needs to be attended to from an accountability and governance point of view,” Schlettwein added.

“The budget policy measures that we have adopted are necessitated by the exigencies of the situation that we are facing as a small, open economy. These measures are indispensable to correcting current imbalances and restoring sustainability.”

“All players, public and private, are called upon to readjust to the new norm, which is temporary and define the adjustment phase. Fiscal and financial discipline is needed to ensure that we adhere to the adjusted budget lines, while implementing other complementary measures to optimise growth and development outcomes,” Schlettwein said.

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