• Calle Schlettwein
This week the European Union (EU) released a list of non-cooperative jurisdictions for tax purposes, which includes Namibia. The Namibian government emphatically rejects this assessment and would point out the following attributes of what we consider to be an equitable and transparent tax regime.
Recently, officials from the Inland Revenue Department met officials from the EU Embassy to Namibia to discuss this matter and to seek clarification on criteria. Since not all explanations could be provided to all our questions, it was agreed that further engagement with local EU staff and or EU tax experts from abroad is needed.
After further engagement with the local EU staff, we were advised of the deadline to inform EU of our commitment to implementing proposed actions or how we react to them. Due to miscommunication, we missed that deadline, but that does not make Namibia a non-compliant country or tax haven. We are, therefore, perplexed to learn that the EU has revealed names of non-cooperative jurisdictions for tax purposes, including on 5 December 2017, which include Namibia.
Namibia has a small open economy with a tax system based on the principles of equality and fairness and we expect all taxpayers, whether, individual or corporate, to comply with the relevant tax legislation.
The Namibian taxation system is principally regulated by the Income Tax Act (which regulates personal and corporate tax) and the Value Added Tax Act.
The Namibian tax system is, therefore, not based on individual residency but where the income arises.
Non-residents temporarily employed in Namibia, or a foreign company trading within Namibia, will be liable for taxes on income earned within Namibia.
Namibia has a source-based tax system. Residents and non-residents earning Namibian-sourced income are subject to income tax. Individuals pay between 18 percent and 37 percent. Non-manufacturing and manufacturing companies pay 32 percent and 18 percent tax, respectively. Mining companies, excluding those mining diamonds, pay tax at 37.5 percent. The tax rate for diamond mining is 55 percent. Companies registered as Export Processing Zone entities pay between 0 percent and 32 percent (dependent on the export destination) and payroll tax.
Payroll tax on employment income must be withheld by the employer under the pay-as-you-earn system and remitted monthly to the Receiver of Revenue.
Transfer duty is payable on the transfer of immovable property. Stamp duties is payable on the Deed documents.
The Namibian tax legal framework contains anti-avoidance rules on transfer pricing and thin capitalisation.
Transfer pricing rules will apply when transactions between related parties are found not to have been done on an arms-length basis. Thin capitalisation rules will apply where interest is paid on foreign loans. Currently, the 3:1 debt-to-equity ratio is used for tax purposes, which is also the ratio prescribed by the Bank of Namibia. The tax laws allow the tax authority to reassess a tax-payer’s liability when a transaction or scheme has been found not to ‘at arm’s-length’, or is designed to avoid or evade a tax liability. This legislation should address any concern on base erosion and profit shifting that may exist.
Withholding tax applies where interest is paid to a foreign company or fees for services are paid to a foreign individual or business. Tax returns must be filed and paid on time. Failure to do so, will incur penalties and interest in addition to the tax.
The standard Value Added Tax (VAT) rate in Namibia is 15 percent. Certain goods and services are zero-rated, such as direct export of goods and international transport and some basic food items. VAT is charged on the supply and import of most goods and services. Businesses must register for VAT if their turnover is more than N$500 000 per year.
Under the Customs and Excise Act, customs and excise duties and the fuel levy are payable.
Namibia is a member of the Southern African Customs Union (SACU) and common external tariffs are applied on imports from outside SACU.
Specific customs and excise duties are levied on traditional excisable products including fuel, jewellery, tobacco and liquor.
The Customs and Excise Department in the Ministry of Finance controls the imports, exports and manufacture of certain goods.
These laws and rules should be adhered to. Detection and interdiction of illicit activities, including cross-border movement of undeclared as well as under-declared goods are done by the Customs and Excise Department in the Ministry of Finance.
Mining royalties are levied in compliance with the Prospecting and Mining Act, as a percentage of the value of the minerals. Rates vary between 2 percent and 10 percent.
Social Security levy is required to be paid by employers. Employers must also make employee contributions for employees whose pay is below a specified threshold. The Social Security Commission can be contacted for further details.
Cash flows in and out of Namibia are monitored by the Bank of Namibia. Before cash is introduced or leaves Namibia, the Bank of Namibia approves the application to move funds. The regulation, therefore, is made aware of the purpose of the cash flow to be satisfied that the cash movement is legitimate.
Namibia has 11 double taxation agreements, including several European countries, namely Germany, the United Kingdom, France and Romania. Other EU member states have approached Namibia to conclude such tax cooperation arrangements, including Spain, Portugal, the Netherlands and Sweden.
While the Namibian economy continues to grow, the challenges confronting us are significant. In this uncertain environment, Government’s focus is on sustainable economic growth ensuring that Namibia’s economy will create jobs to sustain a higher quality of life, helping businesses succeed in the global economy by enhancing conditions for creating and growing businesses, built on the financial sector, develop our natural resources in a safe, responsible and secure way and create high value addition and improved value sharing.
The importance of taxation in economic development cannot be overemphasized. Our country face challenges of unemployment, poverty and income inequality. Sufficient tax revenue permits Government to ensure that these challenges are addressed through the budgetary allocation to economic and social sectors including education, infrastructure development and health. We can, therefore, not compromise on the efficient and transparent collection of tax revenue by creating tax havens.
Oxfam list of 15 ‘worst tax havens’
2. The Cayman Islands
3. The Netherlands
9. Hong Kong
15. British Virgin Islands
“Corporate tax havens are helping big business cheat countries out of billions of dollars every year,” said Esmé Berkhout, a tax policy adviser for Oxfam. “They are propping up a dangerously unequal economic system that is leaving millions of people with few opportunities for a better life.” None of the above tax havens have been included on the EU list and, therefore, one can only speculate on the rationale applied in compiling the EU list of tax havens.
We agree with Alex Cobham, chief executive of the Tax Justice Network, who stated: “Rather than have a list of tax havens based on an objective set of criteria, as originally envisaged, the list appears to be a political fix with EU members picking their least favourite countries to name and shame. The result is a flawed blacklisting process, a politically led list that includes only the economically weak.”
Namibia is clearly, by any objective criteria, not a tax haven. In fact, Namibia is exposed to illicit financial outflow as has been revealed in the recently published “Paradise Papers”.
We had hoped that our trusted partners, including the EU, would assist us in fighting tax havens and curbing tax evasion and, as we speak, we have EU experts within the Ministry of Finance assisting us to improve our tax system.
Namibia and EU member states are closely linked through the EPA (Economic Partnership Agreement) Free Trade Arrangement, which includes disclosure provisions on taxes. Namibia has welcomed European investors and has allowed access to our natural resources (minerals and fish) and we have excellent relations with all EU member states through well-established cultural links.
We conclude that this unilateral action against Namibia by the EUis unjust, prejudiced, partisan, discriminatory and biased.
We believe that we have not been treated equitably and call upon the EU to correct what already has caused serious harm to Namibia’s outstanding reputation as a politically stable democracy with rule of law based institutions. Namibia commits to use its best endeavour to clarify outstanding questions and answers to correct this unfortunate miss-conception.
Unfair actions such as this against small and vulnerable economies harm our people, diminish our chances to prosper and perpetuate inequality. This action by the EU authorities is against the very spirit of our cultures and cooperation efforts.
This is an abridged version of Finance Minister Calle Schlettwein’s press conference held this week to respond to allegations that Namibia is a tax heaven.