The combined tax relief announced by Finance Minister Saara Kuugongelwa-Amadhila during her budget speech on Tuesday will increase domestic spending power by N$1.2 billion during the 2013/2014 financial year.
The finance minister said she proposed an increase of the tax threshold and reduction of individual income tax rates and income tax brackets "to relieve the general tax burden on individuals and to assist our citizens in affording the basic amenities of life."
However, some economists are concerned that Namibians are likely to spend the extra disposable income on cars and luxury goods instead of increasing savings and investing in small and medium size enterprises.
Cameron Kotze, the tax partner at auditing firm Ernst & Young, says the extra disposable income could lead to an increase in imports, which would result in a negative impact on Namibia's trade balance. The tax relief proposed on Tuesday will benefit mostly low income earners since everyone earning N$50 000 or less per annum will no longer pay personal income tax. This means this category of earners should have N$2 700 more in annual income at their disposal.
Those Namibians earning N$100 000 per year will now only pay N$9 000 in personal income tax, whereas this earning group previously had to fork out N$17 200 to the tax collector. This translates into N$683 more disposable income a month, representing an increase of 8.2 percent. In the N$240 000 per year earning bracket the tax relief will free up just over N$1 500 per month, which is an increase of 7.83 percent.
Individuals in this tax bracket used to pay N$62 800 in tax per year, but will now only give the tax collector N$44 000 a year.
Meanwhile, those earning N$1 million per year will walk away with close to N$5 000 per month to spend on whatever they choose, which is an increase of nearly 6 percent. Namibia's total revenue collection for 2012/2013 is estimated at N$37.1 billion, which is up almost 5 percent more than was originally anticipated.
According to Kuugongelwa-Amadhila the upward revision reflects better performance in domestic revenue streams during the year, particularly Individual Income Tax, as well as some categories on non-tax revenue.
"The projected improvements in revenue is on account of initiatives to improve the tax administration regime, the introduction of alternative sources of revenue, recovery in the Southern African Customs Union (SACU) Common Revenue Pool and projected higher collections as the domestic economic recovery gathers steam," said the finance minister during her budget speech.
Proposed Individual Income Tax:
Annual taxable earnings Payable tax
Below N$50 000 0%
N$50 001 to N$100 000 18%
N$100 001 to N$300 000 25%
N$300 001 to N$500 000 28%
N$500 001 to N$799 999 30%
N$800 000 to N$1500 000 32%
Over N$1500 001 37%