8 March 2018

Namibia to Scrap Preferential Tax

Manufacturers in Namibia will no longer get special treatment of paying less tax than everyone else as the policy will be reviewed in an attempt to phase out the preferential tax system.

This was announced by finance minister Calle Schlettwein during his budget speech in parliament yesterday.

Schlettwein's move signifies bowing to pressure from the European Union for the country to phase out the preferential tax system through repealing the Export Processing Zone (EPZ) Act and tax incentives for manufacturers.

In January, The Namibian reported that the country is likely to continue being listed as a tax haven, unless it adheres to EU recommendations.

Schlettwein had pointed out in January that the EU saw the EPZ, which allows exports outside the Southern African Customs Union to be tax-free, as well as the fact that manufacturers get to pay 18% tax instead of the 32% tax paid by everyone else, as a preferential tax regime. The EPZ has also been reported as the main cause why the country has been losing potential revenue from taxes, and that it was only benefiting the extractive industry, while it was meant for all manufacturers.

"I wish to propose phasing out the preferential tax system that is only granted to some in the existing manufacturing sector, to achieve equity and equal treatment of all operators.

"As an intervention to encourage business development and job creation, support instruments for SMEs and start-ups will be introduced and developed over the medium term expenditure framework. Repealing the Export Processing Zone Act and introducing the special economic zones will be a sunset for current operators with EPZ status," said Schlettwein yesterday.

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Namibia was listed as a tax haven last year along with 16 other countries as an attempt by the EU to embarrass those listed, and thus discourage tax havens.

International media yesterday reported that Namibia will be one of six countries left on the list when Bahrain, the Marshall Islands and Saint Lucia are removed from the list next week.

Schlettwein said it was an unfortunate error that the EU listed Namibia as a tax haven as tax havens by their nature wield below average or zero tax rates, and are used as conduits for transfer pricing.

"Multinational companies would tend to establish their principal office in tax havens to serve as conduits for transfer pricing and tax planning activities. We do not subscribe to the subjective classification of Namibia as a tax haven because we are not. We are now engaging the EU authorities, and we trust that Namibia will be de-listed," he stated.

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