WINDHOEK – While government has emphasised that it has no intention of indiscriminately taxing the informal sector to boost the State’s coffers, the Minister of Finance Calle Schlettwein, yesterday warned that his ministry has embarked on life-style audits as well as auditing multinationals to ascertain the actual incomes of everyone evading or avoiding paying tax. During a media briefing yesterday, Schlettwein noted that thus far these audits, particularly the life-style audits, look promising to unearth tax evasion and avoidance.
Schlettwein reiterated that instead of introducing new tax legislation, the Receiver of Revenue is instead working to increase compliance and escalate enforcement of the provisions of the existing tax laws at both informal businesses and large corporations. Another initiative to increase compliance includes a dedicated quarterly field compliance called Operation Sunrise, which is targeting non-compliant entities and individuals. These initiatives, he said, are being undertaken for all registered and non-registered persons irrespective of their nationality and background.
“In the bid to achieve greater equity and fairness in the administration of the tax system we have, of recent, embarked on different initiatives such as lifestyle audits, auditing of multinational companies, including mining and fishing companies, aimed at ensuring tax compliance of all individuals, businesses, companies, close corporations, partnerships and other entities. We shall not relent on this front…Non-registration does not protect anyone from tax obligations and it is an offense in terms of tax laws,” Schlettwein warned. He added that the finance ministry has also requested tax information from the home countries of multinationals to determine any under-declaration of these global companies.
During yesterday’s packed media briefing in the minister’s boardroom, Schlettwein said it is inconceivable and a flagrant violation of tax laws to expect a tax system which is fair and equitable to exempt certain individuals earning the same income as others who are taxed on the bases of an industry or sector of the economy in which they operate.
“The fundamental basis of taxation is levels of income and the tax law defines those levels of taxable income. Income is generated from various sources and their categorisation as formal or informal is not material for tax purposes,” Schlettwein added.
Namibia’s current Income Tax Act (Section 5) subjects any person and any company that earned income during every tax year to income tax. This provision does not discriminate between formal and non-formal businesses and also does not discriminate between Namibian-owned or foreign-owned businesses.
In respect to individual persons, the law sets a taxable income threshold at N$50 000 for those who ought to be registered and pay tax. On top of the threshold, the law further allows for various deductions against taxable income before tax liability is calculated. Both the threshold and deductions equally apply to formal and non-formal businesses.
Also commenting on the tax debate, Klaus Schade, Research Associate at the Economic Association of Namibia (EAN), agreed with Schlettwein that whoever generates an income that exceeds the tax threshold of N$50 000 per annum should pay tax.
“It does not matter whether you are employed or self-employed or whether you work in the formal or informal sector. It is therefore the right step to include the informal sector into the tax assessments, since it will level the playing field between the two sectors a little bit more. However, it will pose more challenges to collect taxes from the informal sector than from formal businesses, because the Receiver of Revenue has first to identify informal businesses then visit them and spend time on estimating their turnover and profit,” said Schade.
He added that often, informal businesses do not have track records of their finances which mean their taxation will be left to the judgement of the tax collector to estimate the profit and subsequently the tax amount. “This could increase the risk of corruption, since there is an incentive to underestimate the profit. Hence, there needs to be some build-in controls to verify the estimates. Overall, collecting taxes from informal businesses will incur higher costs than from formal businesses because of these factors,” said Schade.