Photo: http://www.newera.com.na

A confident Minister of Finance Saara Kuugongelwa-Amadhila increased government spending to a record N$47.6 billion for the 2013/14 financial year.

EVERY dollar in tax relief should trigger economic activity of between N$2 and N$3, Simonis Storm Securities economist James Cumming said yesterday.

Finance Minister Saara Kuugongelwa-Amadhila's tax reforms announced in the 2013-14 budget were the talking point at several budget analysis events since Tuesday night.

Not only will working Namibians have more money in their pockets because of new income-tax brackets, but those buying houses will also score from lower transfer duties. Calculations by Deloitte tax consultants show that someone buying a house of N$750 000 will save N$2 000 on transfer duties. On a house of N$1,8 million, the saving will be N$19 000.

Savings on lower income tax are equally significant. People earning N$180 000 per year will have N$1 150 more in their pockets every month.

Cumming said consumers spending more will mean they pay more value-added tax (VAT), which means more revenue for the government.

There is a downside to the tax breather though, economists warned.

"We expect that the increase in disposable income will reignite growth in consumption expenditure. However, the biggest drawback is the fact that Namibia has a strong import propensity, with between 60% to 70% of consumption being imported," IJG Namibia analyst Romé Mostert said.

"Resultantly, we expect to see a significant spike in imports, which will negatively impact Namibia's trade balance and put further pressure on foreign reserves. The increase in disposable income could also see a significant increase in instalment sales and mortgages," he said.

Kuugongelwa-Amadhila shared economists' concern and urged consumers not to waste their tax savings on non-productive goods. "Don't go and increase your credit limit at Edgars," the minister said yesterday during a panel discussion hosted by the Namibian Chamber of Commerce and Industry (NCCI), KPMG and Prime Focus.

Criticism aside, economists nevertheless welcomed the income-tax relief, the first since 2009.

Tax expert Gerda Brand of Deloitte urged Namibians to pay the taxman what is due to him and optimise Government's revenue from income tax.

"If you do the right thing, Government will be able to provide tax relief," Brand said at a budget breakfast hosted by FNB Namibia and Deloitte.

Analysts also took time to highlight what they regard as existing tax stumbling blocks hampering economic growth - one of them being the 25% withholding tax on services.

Withholding tax on services is tax charged when a non-resident businesses provide services to companies in Namibia. The local company is expected to subtract 25% of the fee charged by the non-resident provider and pay it over to the Receiver of Revenue. This obviously eats into the profit of the non-resident provider.

The current rate makes Namibia uncompetitive, analysts said. At the breakfast, British High Commissioner to Namibia Marianne Young told Kuugongelwa-Amadhila that the withholding tax issue features prominently in queries from UK investors, especially as Namibia becomes a popular oil and gas exploration destination.

The minister had good news in this regard. She said after consultation with the industry, Government realised that the rate is too high.

"In a short while we will come up with a new rate which is lower," Kuugongelwa-Amadhila said. She wouldn't elaborate further.

At a breakfast hosted by Ernst & Young, tax expert Cameron Kotzé called for the withholding tax on services rate to drop to at least 18%.

Kuugongelwa-Amadhila had a stern message for non-resident companies operating in Namibia, though. If paying withholding tax bothers them, they should simply register as Namibian companies and pay the same tax as other local companies, she said.

"There must be a [tax] contribution from everybody conducting business in Namibia, otherwise the playing field is not level," Kuugongelwa-Amadhila said.

She was equally firm about the export levy to be introduced - another tax that will discourage investors, especially in the mining sector, economists fear.

Kuugongelwa-Amadhila said the export levy, with a maximum rate of 2%, will be charged according to the value added to a product before export. The more value added, the less the export levy.

The minister said she wasn't convinced by big foreign companies' argument that they can add value to materials produced in Namibia, while many of them have subsidiaries in other countries where they add value to their product.