Government’ recent tax directive to all government ministries and agencies to not pay business entities that are not tax compliant is wrong, illegal, and socially inconsiderate. It could potentially set the country backward towards its aim to achieve Vision 2030. Whoever is advising this kind of reckless decision should be fired with immediate effect.
It is illogical and illegal in the first place to appoint businesses to provide you with goods and services and thereafter refuse to pay them based on an historic debt.
This reckless decision by Ministry of Finance has immediate and direct negative impact on the survival and future of many businesses and on innocent people who are employees of such entities. It should be retracted as soon as possible.
There are definitely other means and ways upon which businesses could be brought to order in such a way that their going concern status is not challenged.
Before I continue with this piece, I sincerely hope that all government state-owned business entities, especially the RCC, Telecom, NBC, Nampa, New Era, Air Namibia, and Transnamib are tax compliant and will not be deprived of badly needed cash inflows as a result of this decision.
And if they are not tax compliant, then their main shareholder – the government – should start with the process of closing them all down as at the issuance of this tax directive, they, just like any other non-tax compliant business entities, are not entitled to be paid by any government agencies to which they have provided services to.
Allow me please to present some very simple examples of what this negative tax directive means.
Example A: The Roads Contractor Company (RCC) with about 800 employees is appointed by the Roads Authority (RA), both are government agencies, to construct a certain road between town A and B. Upon completion of a certain portion of the road, the RCC presents its invoice without a valid tax certificate, it is not tax compliant, to RA for payment. RA as per the recent tax directive refuses to pay RCC for the services rendered until a valid tax certificate is provided. The immediate effect is that employees will not be paid, the company looks for an immediate loan or bail out from the Ministry of Finance to pay its employees and other obligations. The company is now faced with a decision to retrench its employees, as funds are no longer flowing in to cover its expenses.
Example B: Telecom Namibia places an advert in New Era newspaper wishing the President a happy birthday. New Era presents the invoice without a valid tax certificate to Telecom for payment, and Telecom refuses to pay New Era as per the tax directive not to pay entities that are not tax compliant. Then this scenario replicates among all other state-owned entities that advertise in New Era knowing New Era is not tax compliant. In a reverse scenario: Telecom Namibia presents New Era with a telephone bill without a valid good standing certificate, New Era refuses to pay Telecom as it is not tax compliant.”
Example C: A certain private company with 160 employees built a government regional office somewhere but cannot be paid for services rendered due to tax non-compliance. That company will not be able to pay its employees and other obligations, including the tax that is duly owed.
If our planners and advisers cannot see the negative ripple effects of the above examples, then something is surely wrong. It is hence important to note that business suppliers to government are linked in one way or the other and stopping the inflow to one entity will have an impact on the next entity and eventually to government in the form of taxes.
The other argument is this: business entities are legally entitled to receive what is due to them for services rendered without any direct hindrance whatsoever from the taxman. This lame decision and strategy by the taxman to collect taxes by directly withholding payment can set in motion a very dangerous economic and social disintegration process which will be very difficult to repair if not stopped immediately.
Ministry of Finance, by this decision, is seriously displaying its lack of innovative ability to proficiently collect taxes and should go back to the drawing board in order not to disturb the stable but weak economic and the social fibre of our country. Being the biggest customer that receives various goods and services from a huge variety of businesses, the government is potentially playing with the livelihood of thousands of businesses and their employees, which could further contribute to the already high unemployment rate, to social disorder, destitution and crime.
The Ministry of Finance has a very huge responsibility to ensure that its tax collecting decisions and strategies are based on sound socio-economic and social analyses, as they could achieve the opposite effect than intended. It should be common sense that stopping the cash inflows into businesses that, to a large extent, depend on government business support could potentially lead to the undesired effect of those businesses downsizing on the number of their employees and eventually closing down.
This scenario does not do anyone any good and hence alternative methods should be sought as a means to effectively collect taxes from businesses.
Please note that I do not support tax evasion and avoidance but pragmatic approaches that will not harm our already fragile and imbalanced socio-economic environment.
* Pendapala Hangala is an entrepreneur and a local social commentator.