Windhoek – Listing Namibia as a tax haven is fundamentally wrong because the country’s tax system “is not based on individual residency but where the income arises”, said the Minister of Finance Calle Schlettwein. As a country with a small open economy, Namibia has a tax system based on the principles of equality and fairness and expects all taxpayers, individual or corporate, to comply with the relevant tax legislation.
Schlettwein was responding to the decision by the European Union to list Namibia among the ‘17 non-cooperative tax jurisdictions’, a blacklist that has publicly shamed 17 countries “for failing to meet agreed tax good governance standards”.
Namibia has a source-based tax system, which means that residents and non-residents earning Namibian-sourced income are subject to income tax. The minister pointed out that the Bank of Namibia monitors cash flows in and out of Namibia. “Before cash is introduced or leaves Namibia, the Bank of Namibia approves the application to move funds. The regulation, therefore, is made aware of the purpose of the cashflow to be satisfied that the cash movement is legitimate,” he said.
Namibia has 11 double taxation agreements, including several European countries, namely Germany, the United Kingdom, France and Romania. Other EU member states have approached Namibia to conclude such tax cooperation arrangements including Spain, Portugal, the Netherlands and Sweden.
Namibia’s anger with the listing follows the EU announcement that 17 countries on the blacklist, including Namibia, are those whose tax regimes were deemed unable or unwilling to effectively control taxes and allow illicit financial flows. A memorandum on the listing says that the 17 states such as Namibia are those that have harmful tax regimes that go against the principles of the EU code of conduct on harmful tax practices. Furthermore, they either have not implemented or did not commit to implement the OECD base erosion and profit shifting minimum standards. In addition, the countries are not transparent in the tax regimes, and the EU requires that country comply with international standards on automatic exchange of information and information exchange on request, the EU alleges.
Schlettwein contends that Namibia meets all those requirements.
The Namibian tax legal framework contains anti-avoidance rules on transfer pricing and thin capitalisation.
Transfer pricing rules apply when transactions between related parties are found not to have been done on an arms-length basis, while thin capitalisation rules apply where interest is paid on foreign loans. Currently, the 3:1 debt to equity ratio is used for tax purposes, which is also the ratio prescribed by Bank of Namibia. The tax laws allow the tax authority to reassess a tax-payer’s liability when a transaction or scheme has been found not to be arm’s length, or is designed to avoid or evade a tax liability.
“This legislation should address any concern on base erosion and profit shifting that may exist. Withholding tax applies where interest is paid to a foreign company or fees for services are paid to a foreign individual or business,” said Schlettwein.
Furthermore, Namibia is a member of the Southern African Customs Union (SACU) and common external tariffs are applied on imports from outside SACU. Specific customs and excise duties are levied on traditional excisable products including fuel, jewellery, tobacco and liquor. The Customs and Excise Department in the Ministry of Finance control’s the imports, exports and manufacture of certain goods.
“These laws and rules should be adhered to. Detection and interdiction of illicit activities, including cross-border movement of undeclared as well as under-declared goods are done by the Customs and Excise Department in the Ministry of Finance,” he said.
“Namibia is clearly, by any objective criteria, not a tax haven. In fact, Namibia is exposed to illicit financial outflow as has been revealed in the recently published ‘Paradise Papers’. We had hoped that our trusted partners, including the EU, would assist us in fighting tax havens and curbing tax evasion and as we speak we have EU experts within the Ministry of Finance assisting us to improve our tax system,” said Schlettwein.