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Namibian Budget 2019/2020 Commentary

Shared Prosperity

Introduction

The Minister tabled the fifth mid-year budget review on 22 October 2019.  The aim of the mid-year review is to improve effectiveness of resource allocation during the fiscal year.  Our full commentary can be downloaded as a PDF, and will be displayed on the web page below during the course of 23 October 2019.

 
“We have endured pain and we will have to remain determined to see through the very necessary economic transformation to bring about sustainable and inclusive growth.”

- Hon. Minister of Finance, Calle Schlettwein – Budget Speech 22 October 2019

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Economic context

The Minister tabled his mid-term budget review against the global, regional and domestic markets and events. Some of the areas he highlighted were

  • A slow-down of the global economic growth to 3%, with lower economic activities in advanced, emerging and developing economies. 
  • Projected slow-down of the Chinese economy to 6.1% in 2019 with a further expected slow down below 6% in 2020;
  • Growth in the Sub-Saharan African Region estimated to remain flat at 3.2%, with growth in non-resource intensive countries to have a higher average growth rate (about 6%) and resource-intensive countries projected at 2.7%
  • Growth in South Africa and Angola is projected to remain restrained. Projected GDP rate for South Africa is estimated at 0.7% and 1.2% in 2019 and 2020, while Angola is predicted to have a negative growth of 0.3%;
  • Tension in the Middle-East; and- Effect of climate change.

Revenue collection

Tax revenue for 2018/2019 made up 93% of Namibia’s total revenue of N$56 billion. Total revenue for 2018/2019 is 1.4% less than the budgeted amount of N$57 billion.  According to the Minister, the preliminary revenue outturn for 2019/2020 is N$29 billion, being 50% of the budgeted revenue, and is about 2% better than the average half-year collection rate.Revenue for the FY2019/20 is estimated to remain unchanged at the budgeted amount of N$58 billion based on the half-year outturn, the downside risks on economic growth and the domestic and SACU revenue streams. Total revenue for 2019/2020 is projected to average around 29% percent as a proportion of GDP, reflecting the lagged effect of recessionary pressures, volatility on SACU revenues and the expected weak domestic economic growth.  The budget deficit for 2018/2019 was 4.8% of GDP, compared to the budgeted 4.5% due to lower revenue outturn.

Expenditure and Debt

Total expenditure including interest payments amounted to N$65.1 billion against N$65 billion budgeted.Operation budget implementation rate was 99.5% while the development budget execution rate was 94.8%.  Aggregate expenditure over the MTEF is expected to increase from N$66.6 billion in 2019/2020 to N$67.1 billion in 2020/2021, N$67.8 billion in 2021/2022 and reach N$69.5 billion by 2022/2023.

Public debt is estimated at 49% of GDP for 2019/2020 as the impact of fiscal consolidation emerges.

For the 2018/19 Financial Year End, total debt stood at N$ 87.5 billion, which equals 45.2% of GDP.

Total debt is expected to remain at the budgeted level of 48.9% of GDP for 2019/2020 and is expected to increase to 51% in 2020/2021 and stabilize at about 53.1% by 2022/2023.

Reallocation of funds

A total of N$1.18 billion was freed up through expenditure cuts during the Mid-Year Budget Review process. From the operational budget a total of N$176.32 million was freed up through management of the wage bill and vacancy freeze measuers. A further N$ 999.59 million was freed up from the Development Budget due to slow implementation pace or yet to be implemented capital projects.

Funds were reallocated as follows:

 

Department Project NAD million
Ministry of Agriculture, Water & Forestry Personnel expenditure, utilities, and dry-land crop production 96.65
Office of the Prime Minister Draught Relief Programme 67.33
Ministry of Gender Equality and Child Welfare Orphans and Vulnerable Children Programme 88.00
Ministry of Home Affairs and Immigration Visa Stickers Project 36.00
Ministry of Education, Arts and Culture Recruitment of teachers, Text Book and School Feeding Programme 184.10
Health and Social Services Pharmaceuticals and clinical supplies and recruitment of health professionals 210.72
Ministry of Poverty Eradication and Social Welfare Social grants 88.02
Other (13) No projects mentioned 378.48

 

Tax proposals

The Minister proposed various tax amendments in recent budget speeches which are yet to be tabled. A draft set of amendments were provided by the Ministry in 2018 which was followed by consultation with various stakeholders. As of now the table below summarises the amendments that have been announced over the past few budget cycles, with an indication of those that are still going ahead, those still under consideration and those that are not going ahead anymore.

 

Tax Proposal Status
Moving to a residency/ hybrid tax system Still under consideration
Taxation of trusts as companies Certain to be tabled 
Removing conduit pipe principle Certain to be tabled 
Introduction of 10% dividend withholding tax for residents  Certain to be tabled 
Taxation of commercial activities of charitable, educational & religious institutions Certain to be tabled 
Phasing out manufacturing tax incentive  Certain to be tabled 
Introduction of Special Economic Zones Certain to be tabled 
Changing wear & tear claim to 5 years Unlikely to be tabled
Prohibited deductions - Royalties  Under consideration
Prohibited deductions - Royalties for diamond mining entities Unlikely to be tabled
Prohibited deductions - Foreign losses  Certain to be tabled
Assessed losses to be capped at 5 years Unlikely to be tabled
Proposal to change individual tax tables Unlikely to be tabled
Formalizing the 3:1 thin capitalization ratio  Certain to be tabled
Introduction of VAT on income of listed fund managers  Certain to be tabled
Removing VAT zero rating on sugar  Certain to be tabled
Introduction of VAT on property share transactions  Still under consideration
Contributions to retirement funds increased to 27.5% of income with N$ 100 000 limit (March 2019 Budget Speech - N$ 150 000)  Certain to be tabled
Increase the export levy for dimension stones  Certain to be tabled
Introduce export levy for timber  Certain to be tabled
Investigating introduction of a lower tax regime for small businesses as a means of encouraging entrepreneurship and business growth New on the table - but potentially a revisiting or expansion of the Presumptive Tax Regime first mentioned in 2014 
Proposals for Namibia to join in exchange of information for tax purposes and ratify the OECD Convention on Mutual Administrative Assistance  Certain to be tabled
Capital gains tax No mention
Transfer duty on propety owning company / close corporation No mention

Tax Administration

Integrated Tax Administration System (ITAS)

The Minister mentioned further digitalisation of the tax system by leveraging ITAS.

Namibia Revenue Agency (NamRA)

The launch of NamRA is rescheduled for March 2020.

Growth Stimulus package

The Minister of Finance discussed an economic recovery and growth stimulus package comprising of four interdependent components over the short and medium-term term. The target areas are public expenditure, private sector direct investment, partial listing of state assets and structural policy reforms. More details of what each of these areas entail are provided below.

Public expenditure

Increasing the development expenditure with about N$8 billion, including the roll-out of the N$4 billion AfDB funded project financing for agricultural mechanization, rail and road infrastructure and educational facilities rehabilitation programme. This will be supported by the water infrastructure rehabilitation and expansion programme, to the value of N$2.5 billion in the initial roll-out phase. Furthermore, the roll-out of the SME financing facilities at the Development Bank of Namibia, will commence with the launch of the Credit Guarantee Scheme, Mentorship and Training Programme, and the Skills-based lending facility for the youth.

Private sector direct investment

Enabling the policy framework for implementation of the N$20 billion private sector investment commitments made at the 2019 Economic Growth Summit. Private sector development activity will be enhanced with targeted capitalization of the Development Bank of Namibia, AgriBank and the Equipment Aid Scheme at the Ministry of Industrialization, Trade and SME Development.  

Partial listing of state assets and PPP projects

Creating investment space through leveraging and partial listing of state assets (starting with the telecommunication sector) and bringing PPP project proposals to the market.

Structural policy reforms

Implementing priority structural policy and related reforms raised at the 2019 Economic Summit to promote the ease of doing business and business confidence across various parameters.

Other considerations

Accelerating the turnaround time for public procurement project adjudication and award.

Protecting allocations to the development budget.

Effective revenue mobilization strategy, encompassing tax administration reforms and increasing digitalization of the tax system. Lifting the threshold for unlisted investments in phases from 5%, 7.5% and ultimately to 10%, subject to performance criteria.

The information contained in this guide is for general guidance only and is not intended as a substitute for specific advice in considering the tax effects of particular transactions. While every care has been taken in the compilation of the information contained herein, no liability is accepted for the consequences of any inaccuracies contained in this guide.

The full Mid-term budget statement as presented by the Minister should be available on the Ministry of Finance website