Personal Taxes

Namibia personal taxes inattentive to inflation

THIS year will be Namibia’s 10th year without any change in personal income tax tables, drawing into the tax net cleaners, gardeners and security personnel who have received minimal inflationary increases over the recent years.

Anyone who earns taxable income of N$50,000 a year is eligible to pay tax.

By not adjusting the tax rates, those with low incomes now share the minimal remaining net pay between the taxman and the ever-increasing price of goods and services.

The last adjustments to the tax tables were made in 2013, when Saara Kuugongelwa-Amadhila was the finance minister.

UNTAPPED POTENTIAL

Not only is this a problem for some individuals who now have to sacrifice part of their pay increase to shield them against inflation, but also for treasury because the rigid tax regime has probably led to Namibia not maximizing benefits that it could derive from personal taxes.

In his 2022/23 national budget speech, the South African finance minister, Enoch Godongwana, announced that tax rates were going to be adjusted, while Namibian finance minister Ipumbu Shiimi only said the treasury was considering adjusting corporate tax, without mentioning individual taxes.

In South Africa, the tax threshold sits at N$91,250 and in Botswana at P72,000.

A recent article by the International Monetary Fund (IMF) titled, ‘Personal income tax has untapped potential in poorer countries’, said developing countries such as Namibia have a potential to rake in much income tax if they make smart adjustments to individual taxes.

According to the IMF, these taxes mainly levied on wages, salaries, and other income are an ideal instrument for raising significant amounts of revenue in the “fairest way possible”.

The IMF recommends personal taxes as a means to raise funds for expenditure and development. This can be done by either taxing the rich more, or reducing tax rates for those at the bottom. This, according to the fund, has worked in many economies.

The IMF bases its recommendation on the fact that personal taxes only make up about 9% of the gross domestic product (GDP) globally.

In developing countries, personal taxes’ contribution is as little as 2.5% of national output, partly because of their narrow tax base, and it does little to reduce inequality, says the fund.

LEARNING POINTS

In its assessment, the IMF considered three issues: what drives personal income tax growth, how increases affect total revenue performance, and how these levies influence income redistribution.

The findings hold important lessons for developing countries, particularly as they grapple with the post-pandemic challenge of building the capacity to raise more tax revenue, which could return countries to a better fiscal space, the fund said.

In Namibia, personal income taxes are 7% of GDP.

For the 2022/23 fiscal year, the treasury expects to rake in N$14.6 billion from personal taxes.

In examining the progress of personal income tax in developing countries, the IMF said developing economies tend to grow faster when individual personal disposable incomes increase. They would then spend more, causing production and demand for goods and services to soar – leading to economic development.

“As economies develop, we can expect this tax to take on greater importance. Improvements in tax administration also potentially play a role in boosting revenues, though that also extends to other taxes,” reads the IMF note.

The IMF says while high personal tax rates could be good for addressing inequality, they do much damage to influencing economic development, and a balance needs to be struck.

E-mail: [email protected]

Twitter: @Lasarus_A

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