Windhoek-Finance Minister Calle Schlettwein (pictured above) yesterday dropped a bombshell by announcing that plans are afoot to tax income derived from commercial activities by religious, charitable, educational and other types of institutions under Section 16 of the Income Tax Act. This, the minister said, would be converted to normal corporate tax, ending the tax haven enjoyed by particularly churches in Namibia, many of which are run on strict commercial principles.
Just recently, a popular Katutura-based church publicly announced that it was offering a seminar on financial freedom, where attendants of the morning session were charged N$200 each. It is this kind of commercial activity that Schlettwein seeks to tax, if his announcement yesterday is anything to go by.
“Such institutions will be required to register as taxpayers and file annual income tax returns,” a stern-faced Schlettwein reported to the National Assembly.
Overall, despite hopes over the national budget, reading between the lines shows that the proverbial seven lean years might not just be over for Namibia yet. Treasury presented a reduced budget in total public expenditure at N$58,4 million. The capital budget has gone up with new funding planned for roads, rail, water and agricultural infrastructure.
The total capital budget stands at N$7,8 billion – up from N$5.6 billion the previous year – to specifically spur an upward movement within the infrastructure development sector.
For the next three years the capital budget is infused with off-budget project financing, consisting of concessional loans, financing from development institutions and money raised through private partnerships.
However, buried in the details is a caveat. Finance Minister Calle Schlettwein plans to squeeze an extra N$500 million from any able-bodied Namibian making a decent living from whatever money generating activities, including churches.
Schlettwein needs the money to fund the N$65 billion budget for this year and its cumulative budget for the next three years.
He is adamant that the new tax policy would give more breathing space to people whose earnings are at the bottom of the food chain.
In fact the tax bracket for individual income has been reduced from 18 percent to 17 percent. Those earning more than N$1,5 million a year would also pay 39 percent of income tax while those earning over N$2,5 million would pay 40 percent.
Schlettwein yesterday pointed at various lessons learnt from the previous two financial years, saying that going forward the focus is on addressing the long term answer to Namibia’s problems through a host of structural policy reforms. The reforms, he says, are critical in their contribution to economic activity, reinforcing the impact of fiscal policy and contributing to the successful implementation of the fiscal consolidation measures.
“Government will maintain a balanced fiscal consolidation policy, with the objective of stabilising the growth in public debt over the medium to long-term, while maintaining the growth-friendliness and social development objectives of fiscal policy,” he said.
To avoid falling back in this trap, government will “implement revenue-raising tax policy changes and alternative forms of financing, particularly PPPs and structural policy reforms to support the implementation of the fiscal consolidation program, while keeping fiscal risks in check.”
The minister will continue to rein in S&T claims in the public service, while transfers to state-owned enterprises are also to be closely guarded. In this regard, the Ministry of Public Enterprises will first have to sign off the viability of business plan and needs before funding is authorised.
The moratorium on construction of new office blocks remains in place for the next three years.
Schlettwein is certainly hoping the budget of N$58,4 billion in public expenditure would kick-start an upward trajectory in ending the period of sever budget cuts across the board. In total the budget is priced at N$65 billion when off-budget project financing, sourced externally, is included.
But public debt remains a concern for Schlettwein. “We must contain growth in non-core spending, raise revenue, effectively manage historical cost drivers and hasten to implement enabling structural reforms,” he urged.
“This is particularly in regard to the public wage bill, now standing at 50 percent of total revenue and 16 percent of GDP, perpetual bailouts of some commercial public enterprises, escalation in capital project cost prices and the dollar costs of internal inefficiencies in offices, ministries and agencies,” said Schlettwein.