Namibian Budget 2020/21
Together thriving again
“ As Namibians, we too should not allow this crisis to go to waste, we are called upon to develop alternative ideas and implement them in earnest, with dexterity, entrepreneurship and innovation to achieve shared prosperity for the current generation and for the better future of our grandchildren." Minister of Finance Mr Iipumbu Shiimi, 27 May 2020
Finance Minister Iipumbu Shiimi delivered his maiden Budget Speech against the backdrop of the State of Emergency declared on 17 March 2020 due to the COVID19 pandemic. Quoting His Excellency President Geingob in saying “while the pandemic we are faced with today is unprecedented, we are confident that working collaboratively, we will still respond effectively to minimize the spread of the virus and loss of life, and restore the health of those affected”
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The Minister noted that the health emergency and the consequent suppression measures have helped to save lives, globally and at home. For Namibia the containment of the virus thus far resulted in a low number of cases and no deaths as to date. The budget is presented as part of the fight against COVID19 with the aim of saving lives and livelihoods and to place Namibia in a stronger position to thrive in the foreseeable future. He therefore themed this year’s budget as “together defeating COVID-19, together thriving again”.
COVID-19 stimulus packages were announced during the course of April 2020 and we will elaborate on them later.
The global real GDP for 2020 is now forecasted by the International Monetary Fund (IMF) to contract by 3.0 percent this year, from what could have been a 3.4 percent positive growth forecasted in October 2019. The South African GDP contraction is estimated at 5.8 percent while the Angolan economy is projected to contract by 1.4 percent. The small, open economy of Namibia is estimated to contract by 6.6 percent in real terms this year. The Minister’s expectation is that the contraction will continue into 2021 at a moderate rate of 1.1 percent, with the new normal average growth rates of between 2.0 and 3.6 percent in 2022 and beyond.
Both exports and imports are expected to decline by 11.9% and 14.9% respectively and all major industry sectors are expected to post negative growth rates.
Monetary policies have been set to afford the business and household sectors a cushion to adapt to the adverse impacts of COVID-19 and as such the Repo rate was cut twice by a cumulative of 200 basis points to 4.25 percent since the outbreak of COVID-19. This is among a low inflation environment (standing at 1.6 percent by April 2020 and estimated to average below 3 percent for 2020) and private sector credit extension that remained subdued (only expanded by 6.7 percent during the first two months of the year).
Stock of international reserves stood at about 4.6 months of import cover by the end of April 2020. The Minister commented that this level of reserves is adequate to meet international obligations and support the currency peg.
Fiscal snapshot 2019/2020
With Government’s fiscal consolidations measures implemented in recent times, total expenditure slowed to about 37.7 percent of GDP by FY2019/20, from a high of 42.8 percent in FY2015/16.
Preliminary estimates for revenue collected for FY2019/20 is estimated at N$58.6 billion. This is 33.2 percent of GDP and it line with the revised budget estimate.
Collected revenue saw better returns in personal income tax and VAT that counterbalanced the lower collection on corporate tax.
The projected impact of COVID-19 on the economy is estimated to have a significant negative effect on revenue for FY2020/21 and projections are:
- N$51.4 billion revenue, 30.0 percent of GDP and 14.3 percent below the indicative MTEF estimates for 2020/21;
- SACU revenue N$22.3 billion;
- external and domestic demand shocks and trade disruptions will result in about 32.8 percent decline in VAT collections;
- supply side and production disruptions would lead to a decline of about 20.3 percent in individual income tax due to wage reductions and job layoffs across various sectors of the economy; and
- corporate income tax is estimated to fall by about 25.5 percent.
On the expenditure side for 2019/2020 the Minister highlighted the following:
- preliminary expenditure outturn stood at N$66.8 billion;
- the non-interest operational budget execution rate estimated at about 99.5 percent;
- development budget execution rate stood at 83.2 percent;
- the budget deficit is estimated at 4.7 percent of GDP, compared to 4.1 percent as budgeted, mainly due to revisions in nominal GDP;
- public debt as a percentage of GDP stood at 54.8 percent; and
- debt servicing as a percent of revenue stood at 13.5 percent and contingent liabilities of Government were approximately 6.3 percent of GDP relative to the 10 percent maximum cap.
Due to uncertainties created by the COVID-19 pandemic, the Minister
announced a single-year budget totaling N$72.8 billion. The single-year budget aims to address the once-off needs that are arising from the impact of COVID-19.
Main budget items are:
- non-interest operational expenditure is budgeted at N$57.9 billion, 8.8 percent more than the previous year;
- development budget amounts to N$6.4 billion, 8.4 percent more than the actual development budget spending in the previous year;
- budget deficit for FY2020/21 is estimated at 12.5 percent of GDP. The budget deficit will be financed through a combination of own savings and domestic and external borrowing;
- debt stock is estimated to rise to N$119.1 billion, corresponding to 69.6 percent of GDP, from 54.8
COVID Stimulus packages update
The Economic Stimulus and Relief Package, announced by Government during April 2020 included ten main points being:
- An emergency budget of N$727 million was frontloaded to the health sector;
- an Emergency Income Grant, providing a once-off payment of N$750 to a targeted low-income group affected by COVID_19 was rolled out. A total of 747 281 Namibians have so far benefited from the grant at a cost of N$561.96 million. A further 120, 000 people are expected to benefit after completion of the verification process;
- the National Employment and Salary Protection Scheme for COVID-19 was launched on 10 April 2020 in collaboration with the Social Security Commission. To date, over 1,372 applications from employers to access the benefits have been made at the Social Security Commission as an implementing agency.
- acceleration of payment of overdue unpaid invoices for suppliers of goods and services to the Government valued at N$1.2 billion were paid out;
- at 31 March 2020 outstanding VATrefunds were estimated at N$3.0 billion of which N$1,8 billion have been paid out;
- non-agricultural SME loan scheme at DBN, for which a N$500 million Government guarantee is provided,
- agricultural business loan scheme and bridging finance for AgriBank for which N$350 million Government guarantee is provided. The stimulus and relief program by AgriBank will start on 1 June 2020;
- granting of the policy relief to borrowers and policy holders and members in the non-banking financial sector. Gazetting in collaboration with NAMFISA ;
- a one-year tax-back loan scheme capped at N$470 million for non-mining corporates;
- a similar scheme for individuals capped at N$1.1 billion;
- provision of a water subsidy of N$80 million under the Ministry of Agriculture, Water and Land Reform to avail water to all communities;
- waiving of levies and duties on kerosene fuel as a basic consumer goods; and
- an emergency budget of N$600 million is availed to the Ministry of Basic Education, Arts and Culture for the provision of water, ablution facilities and hostels at about 193 schools, countrywide.
Tax policy proposals
Tax Policy Proposals
The Minister noted that this is not a time to introduce new taxes. Therefore no changes were announced to individual income tax rates, corporate tax rates and indirect taxes, apart from sin taxes.
The Minister did however note that tax administration measures to achieve equity and fairness in the tax system will be pursued. Measures to combat tax planning and tax avoidance opportunities will also continue to be pursued. He also put out a warning that all Namibians that earn above the tax threshold of N$ 50 000, irrespective of the type of economic activity, must pay tax.
For the Minister’s comments on the amendment bill relating to manufacturing
and export processing zone – see our comments later in this document.
On the various other income tax and VAT changes that have been proposed by
the Ministry of Finance over a period of time, the Minister noted that extensive
consultation will be conducted with stakeholders before a decision is made on the way forward. We have prepared a summary of these on the next page.
The Minister noted the following tax administration measures:
- Implementation of the transitional arrangements for the establishment of the Namibia Revenue Agency by commencing with the recruitment drive,
- improving the tax administration to ensure compliance with tax laws and, improving the efficiency of domestic tax collection, assessment and forensic audit,
- improving the functionality of the Integrated Tax System to leverage service innovation embedded in the new system, and
- leveraging regional and international tax cooperation.
Personal income tax brackets
Personal income tax brackets have last been changed in 2013 and although
we understand the Minister’s one-year budget in the current circumstances, these brackets are now clearly out of line with inflation.
Excise duties on alcohol and tobacco
In line with the SACU agreement the following increases are applicable from 27
- a 340ml can of beer or cider will cost an extra 8c;
- a 750ml bottle of wine will cost an extra 14c;
- a 750ml bottle of sparkling wine will cost an extra 61c;
- a bottle of 750 ml spirits, including whisky, gin or vodka, will rise by N$2.89;
- a packet of 20 cigarettes will cost an extra 74c;
- a 25 gram of piped tobacco will cost 40c more, and
- a 23 gram cigar will cost an extra N$6.73.
With alcohol sales and exports that have+ been prohibited since 27 March 2020 we expect the Ministry to have a substantial lower excise collection in 2020/2021
compare to the prior year.
No further announcements were made regarding increases and/or changes in
environmental levies, plastic levies and fuel levies.
The previous amendment to these evies were on 2 August 2019. Changes were made to carbon taxes and environmental levies on the importation of tires. On that day fuel levies were increased for:
- Petrol, distillate fuel and biodiesel, 90c/ litre (increased from 65c/litre)
- Illuminating kerosene, Specified aliphatic hydrocarbons solvents and Other biodiesel 120 cents/litre (increased from 95 cents/litre).
Special Environmental Duties on importation of lubricants and plastic bags
were introduced on 2 August 2019.
Manufacturing incentives and Export Processing Zone amendments
The former Minister of Finance tabled the first income tax amendment bill of 2020 in Parliament on 19 February 2020. The bill repealed the tax incentives applicable to registered manufacturers and export processing zones (“EPZ”). This is in part, to comply with the requirements of the European Union (“EU”) for the removal of Namibia from the list of non-cooperative jurisdictions as such incentives are regarded by the EU as harmful preferential tax treatment. The ministry has also conducted a review of the EPZ and manufacturing incentives and found that they have not yielded the benefits that were initially expected.
In our view, the amendments are not aligned to Namibia’s objective of becoming
an industrialized economy. This was also confirmed by the High-Level Panel on the Namibian Economy (HLPNE) and noted that “unless a suitable framework is created to benefit manufacturing entities, we believe the country will become even less attractive for foreign investment and we will not meet our envisioned plans to become an industrialized nation.” The HLPNE recommended that the amendment be suspended until a suitable alternative has been implemented. Despite the recommendation the amendment bill was submitted to Parliament.
The repeals will become effective from a date to be determined by the Minister by notice in the Government Gazette. This means that even if the amendment bill is passed and gazette, it will only become effective at a future date as determined by the Minister.
The EPZ regime will be replaced by theSpecial Economic Zone (SEZ) regime. Details are yet to finalization, but the policyframework will define the governance structure, applicable investment incentives and guide the transition from EPZ and Manufacturing Incentives Regimes to the SEZ incentives. The SEZ regime will strengthen the investment incentive policy function in Namibia. It is important to note here that aspects that were classified as harmful in the EPZ regime, ofcourse cannot be re-introduced in the SEZ incentive package.
What has changed and what has not changed?
The amendment bill repeals the provisions that allowed Inland Revenue to register, on application, taxpayers that conduct manufacturing activities as registered manufacturers. Inland Revenue will therefore no longer register manufacturers as registered manufacturers for income tax purposes. We also assume that applications that have not been processed
or finalised yet will not be entertained any further.
The amendment further states that current registered manufacturers will
no longer enjoy special tax deductions/ incentives. The tax incentives that will no longer be available to registered manufacturers are:
- A tax rate of 18% for ten years;
- A 25% allowance on the remuneration and training costs related to manufacturing activities;
- A 25% allowance on marketing and advertising related expenses in respect of exported goods manufactured or produced in Namibia; and
- A 25% allowance on the land-based transport (road and rail) costs of
materials and components used in the manufacturing activities and imported equipment used in the manufacturing process for ten years.
- 80% allowance on exports
Export Processing Zone
What has changed and what has not changed?
Entities that applied for and received EPZ status or that are operating within an EPZ were subject to various tax exemptions.
The amendment bill repeals some of those exemptions. The exemptions that will no longer be available to taxpayers with EPZ status are:
- Stamp duties applicable to instruments relating to the transfer, hypothecation or lease of movable and immovable properties located in an EPZ;
- The payment of transfer duty on the acquisition of immovable property
located in an EPZ; and
- The payment of income tax by an EPZ management company and an EPZ approved entity in respect of income derived in an EPZ.
The bill also amended the provision relating to the movement of goods from
Namibia to an EPZ and from an EPZ to Namibia. Such movements will no longer be regarded as an export from Namibia and an import into Namibia. It follows that customs duties, import control provisions and import VAT will no longer apply to the movement of goods as such. However, we noted that the specific provisions in the Value-added Tax Act relating to EPZ entities
have not been repealed - those are:
- The zero-rating of supplies made to EPZ entities; and
- The exemption on imports of goods and services by an EPZ/ into any EPZ are from outside Namibia.
This means that a supply by a Namibian VAT registered person to an EPZ will still be zero-rated. Also, an import by an EPZ of goods or services from outside Namibia will still be exempt from import VAT.
It is somewhat peculiar that the repeal of the provisions mentioned above are done through the income tax amendment bill as these are listed in the EPZ Act and VAT Act. We would have expected those provisions to be repealed through an EPZ Amendment Act and VAT Amendment Act.
Status of previous tax proposals
||Mid year budget October 2019
||HLPNE recommendation||Budget statement 2021|
|Moving to a residency/ hybrid tax system
||Still under consideration||Delay for indefinite period||No specific comment was made,potentially still under review butwith consultations to take place|
|Taxation of trusts as companies Eliminating base eroding tax holidays and preferential tax rates Removing conduit pipe principle||Certain to be tabled Certain to be tabled||Tax only trading trusts||Still under review with consultations to take place|
|Introduction of 10% dividend with holding tax for residents||Certain to be tabled||Delay for indefinite period||Still under review with consultations to take place|
|Taxation of commercial activitiesof charitable, educational & religious institutions||Certain to be tabled||Tax trade activities only||Still under review with consultations to take place|
|Phasing out manufacturing taxincentiveIntroduction of Special economic Zones||Certain to be tabled||Agree if SEZ introduced||Implementation this year|
|Changing wear & tear claim to 5 years||Unlikely to be tabled||No recommendation||No specific comment was made,potentially still under review butwith consultations to take place|
|Proposal to change individual taxtables *||Unlikely to be tabled||No specific recommendation||No mention|
|Prohibited deductions – Royalties Prohibited deductions – Royalties for diamond mining entities||Under consideration Unlikely to be tabled||Recommend suspension ofintroduction||Proposal withdrawn|
|Prohibited deductions – Foreign losses||Certain to be tabled||No comments||No specific comment was made,potentially still under review butwith consultations to take place|
|Assessed losses to be capped at 5 years||Unlikely to be tabled||Suspend for indefinite period||No mention|
|Formalizing the 3:1 thin capitalization ratio
||Certain to be tabled
||No comment at time report wasissued||No mention|
|Introduction of VAT on income oflisted fund managers||Certain to be tabled||No mention||Still under review|
|Introduction of VAT on property share transactions||Still under consideration||No mention||No mention|
|Contributions to retirement funds increased to 27.5% of income with N$ 100 000 limit (March 2019 Budget Speech – N$150000)||Certain to be tabled||No mention||No mention|
|Increase the export levy for dimension stones Introduce export levy for timber||Certain to be tabled Certain to be tabled||No mention||No mention Consultation to be undertaken|
|Investigating introduction of a lower tax regime for small businesses as a means ofencouraging entrepreneurship- and business growth.||New on the table – but potentiallya revisiting or expansion of thePresumptive Tax Regime firstmentioned in 2014||No recommendation||No mention|
|Proposals for Namibia to joinin exchange of information for tax purposes and ratify the OECD Convention on Mutual Administrative Assistance||Certain to be tabled||Only mention in general terms|
|Capital gains tax||No mention||No mention|
|Transfer duty on property owning company/close corporation||No mention||No mention|
* Proposal to change individual tax tables
|N$ 0 - N$ 50 000||Not taxable|
|N$ 50 001 - N$ 100 000||N$ 0 + 17%|
|N$ 100 001 - N$ 300 000
||N$ 8 500 + 25%|
|N$ 300 001 - N$ 500 000||N$ 58 500 + 28%|
|N$ 500 001 - N$ 800 000||N$ 114 500 + 30%|
|N$ 800 001 - N$ 1 500 000||N$ 204 500 + 32%|
|N$ 1 500 001 - N$ 2 500 000||N$ 428 500 + 39%|
|Over N$ 2 500 001||N$ 818 500 + 40%|