WINDHOEK – he Popular Democratic Movement (PDM) Youth League (YL) has condemned government’s intention to step up efforts to tax the informal sector. The youth wing of PDM has called the directive “worrisome and misguided’’.
“It is our view that the Namibian informal sector has not developed at the economic and technical level required to adequately and fairly tax it without significantly collapsing the market and creating massive unemployment, especially in this economic situation we find ourselves in,” said PDM YL spokesperson, Maximalliant Katjimune.
During a media briefing yesterday at the PDM headquarters in Windhoek, Katjimune suggested that government rather focus on taxing big businesses that have been evading government tax for years. “It is an open secret that there are big corporations which were mentioned in the ‘dubbed’ Panama Papers that are evading millions of dollars worth of taxes by storing money illegally in overseas accounts. We would mention them one by one but the scale of tax evasion by underground business operators in this country is on a very grand scale,” Katjimune charged.
He added that government should also step up efforts to properly tax Chinese businesses operating in the country. “It is an open secret that businesses in Chinatown are known for storing large amounts of money in storerooms in an effort to avoid tax. This is where government should start and not the informal sector,” said Katjimune.
Also weighing in on the taxation debate, the acting CEO of the Namibia Chamber of Commerce and Industry, Charity Mwiya, said government needs to realise that the informal sector caters for the poorest of the poor in Namibian society. “I don’t think it is the right time and the right way for government to increase their revenue. Government should instead be focussing on resuscitating the formal economy. Formalising the informal economy also has the potential to increase prices for the poorest in our economy,” said Mwiya.
She also stressed that government should instead focus on tax evaders and even investors who do not pay adequate taxes.
Some economic analysts have in the past called for government to formalise the informal sector in order to broaden the tax base, while others have cautioned that this can only happen if the informal sector is regulated.
However, the conundrum facing regulators is that by its very definition, the informal sector is a segment of the economy that is neither regulated nor protected by the state.
It goes without saying that having a more formal economy is preferred by the taxman, as formal businesses pay taxes which in turn pay for public services. It is estimated that formal jobs pay up to 20 times more than informal ones and formal firms are more likely to innovate, grow and export. Also, due to their very nature, informal businesses generally operate outside the rules, whether by dodging taxes or by avoiding regulations.
While there is no official data on the informal sector’s contribution to Namibia’s economic growth and activity, it is clear that the sector is significant to the economy, specifically in terms of job creation.
During an interview with New Era earlier this year, research associate at the Economic Association of Namibia, Klaus Schade, said that any efforts to tax the informal economy need to balance costs and benefits. “Since these are unregistered, often micro and small businesses, it will be quite labour intensive to identify and visit them. Moreover, informal businesses often do not keep record of their income and expenditure and hence it will be challenging to estimate their turnover and profits,” Schade commented.
A recent report by the African Development Bank, titled ‘Recognising Africa’s Informal Sector’, estimated that the informal sector contributes about 55 percent of Sub-Saharan Africa’s GDP and 80 percent of the labour force.
While some are advocating the taxation of the informal sector, arguing that it could result in growth for the local economy, employment and wealth creation and ultimately improved revenue for government, others have cautioned that a large number of those operating in the informal sector earn considerably less than the minimum thresholds for the various forms of tax, particularly income and value added tax.