There is a saying that ‘only two things are certain in this world – death and taxes’. This means that given the many uncertainties in the world, people can rest assured that unquestionably death will visit them one day and they can be assured that they will have to pay tax.
The Ministry of Finance has warned that failing to pay and honour tax obligations undermines the country’s development agenda, as tax revenue is the basis of financing state activities. The consequence of ignoring paying tax is twofold. One, the country is deprived of resources, which it must use to implement social and economic developmental programmes. Two, one pays a heavy price for non-compliance. This heavy price comes in the form of penalties, interest, loss of assets, arrest and prosecution, which might lead to sentencing to fines and/or jail terms.
According to the Commissioner of Inland Revenue in the Ministry of Finance, Justus Mwafongwe, it is better to comply with tax obligations than put the economy of the country at risk or face the horrendous heavy price.
“Namibia’s tax system is based on canons (principles) of taxation which include fairness, equity, etc., and thus all individuals and businesses are expected to pay the correct proportion of tax in relation to their income as prescribed by tax laws. Once this does not happen it creates unfairness in terms of equity distribution to those individuals who comply,” said Mwafongwe.
Both the Inland Revenue Department (IRD) and Customs and Excise in the Ministry of Finance continue to offer regular tax advice to all taxpayers and engage them in understanding tax laws and procedures. Such initiatives include the hosting of an annual taxpayer education day every June, which is done to sensitise taxpayers about their obligations and rights, and more so to promote a culture of tax compliance in the country.
The main objectives of the taxpayer day are to create tax awareness and knowledge of taxes administered by IRD, to encourage taxpayers to register and pay taxes voluntarily for the greater common national benefits and to remind taxpayers to fulfil their obligation of keeping tax records and filing tax returns on time.
“A taxpayer who is in default and unable to settle the tax debt through a one-off payment is allowed to make an arrangement to pay off the tax debt over a period of time. Based on such arrangement and provided that the taxpayer honours the instalment plan, a taxpayer may obtain a Good Standing Certificate that could help in securing new business opportunities, thereby increasing the capacity of the taxpayer not only to generate more revenue and expand the business but also to accelerate settlement of the tax debt and pay more taxes,” Mwafongwe explained.
He added that payment of tax through electronic fund transfer and point of sales machines creates convenience and flexibility to taxpayers and reduces compliance costs.
Mwafongwe noted that recently the ministry abolished the requirement of a Good Standing Certificate for payments. The intention of this step is to allow taxpayers, especially small businesses, to manage their cash flows and be able to sustain their operations.
“Taxpayers must make use of incentives provided in order to settle their accounts and become compliant. The ministry is consistently monitoring the compliance behaviour of taxpayers and will continue to introduce measures to enforce tax compliance. If need be the ministry will not hesitate to introduce new strict measures. Individuals and companies that are in the tax net, but for reasons only known to them are not registered, must come forth and register voluntarily to avoid heavy penalties when they are detected,” Mwafongwe warned.
The IRD and Directorate of Customs and Excise with the broader Ministry of Finance are responsible for taxes and duties collection. One of their main objectives is to ensure effective and efficient administration of tax laws and facilitation of trade to optimise revenue collection.
In order to accomplish the aforementioned objective, every financial year the Ministry of Finance projects a tax revenue target which Inland Revenue and Customs and Excise are tasked to collect.
“The revenue target is one of the key performance indicators for Inland Revenue and Customs and Excise. Through the performance management system, the revenue target is cascaded down throughout operational units within
Inland Revenue and Customs and Excise,” said Mwafongwe.
In order to ensure the desired level of revenue is not compromised, taxpayers are managed and controlled based on segment units in the form of large taxpayers, under the Large Taxpayer Office and small and medium taxpayers under the Small and Medium Taxpayers Directorate through its seven regional offices. This set-up enables dedicated monitoring and service of taxpayers within their respective categories.
Tax revenue comprises of individual income tax, corporate tax, value added tax, transfer duty, stamp duty and fees, environmental levy, export levy as well as customs duty and excise taxes. Taxes from international trade also represents a significant portion of revenue streams.
Like many countries, Namibia adopted a self-assessment taxation system. This system requires taxpayers to self-account for their tax obligations ranging from tax liability determination to timely filing and payment of taxes due.
The self-assessment system is complimented by taxation at source through withholding methodology. This means that paying institutions such as employers and pension/retirement administrators are obligated to deduct tax from remunerations of employees and pension/retirement benefits. Further, companies must also withhold taxes on directors’ fees, sitting allowances, and payments to non-residents for services rendered.
Given the self-assessment system, the ministry through its revenue management programme, which comprises the IRD and Directorate of Customs and Excise, plays key roles of assisting taxpayers to comply through taxpayer education and services; facilitation of trade and movement of goods through managing border posts; and compliance enforcement through audits, investigations and inspections.
There are specialised units such as Transfer Pricing, Forensic Audits, Tax Intelligence and Investigations as well as Risk Management. These units are established to deal with complex issues, including transfer pricing and illicit financial transactions by multi-national companies.
Some effective enforcement tools include the use of a Good Standing Certificate as a requirement to participate in procurement processes, tax directives for certain payments, arrear tax recovery through third parties and guarantees on tax and duty payment deferments. From time to time, the ministry also carries out special operations and field work to bring unregistered individuals and entities into the tax net.
To ensure tax equity, income equality distribution and additional revenue to the state, in line with previous announcements by the Minister of Finance, the ministry continues investigating the feasibility of introducing presumptive tax as well as capital gains tax.