Namibia: Cabinet Approves Manufacturing Amendments to Income Tax Act

17 September 2021

THE Cabinet in principle approved the drafting of an amendment bill to the Income Tax Act yesterday. This will allow a transition period of five years for existing manufacturing incentives.

The five-year transition period applies to entities already running on manufacturing status by the Ministry of Finance in terms of the act.

This status allows them to pay income tax at a rate of 18%, and to claim additional deductions from their income for tax purposes.

The briefs were yesterday delivered by minister of information and comunication technology Peya Mushelenga.

This comes after an amendment to scrap Section 5A of the Income Tax Act was passed by parliament last year and signed into law by president Hage Geingob last August.

Section 5A as part of the tax code was used to give manufacturers the benefit of a reduced tax rate, and additional allowable tax deductions.

Once the five-year transition period lapses, manufacturers will no longer benefit from a reduced tax rate of 18% or other tax incentives.

As a result, they will start paying corporate tax like other businesses.

Manufacturers currently pay 18% tax, and are given a 10-year capital allowance claim for buildings instead of 20 years.

Additionally, they are granted a 125% tax deduction for expenses such as salaries, and training costs of employees for taxpayers who are registered manufacturers.

Other incentives include a 125% tax deduction for export expenses and for land-based transportation costs.

These incentives are given for a period of 10 years, in conjunction with the Ministry of Industrialisation and Trade and the approval of a company as a manufacturer.

The Namibian last year reported that data from the tax office showed that between 2010 and 2019, registered manufacturers paid N$500 million in corporate taxes - averaging N$50 million a year.

"Cabinet referred the bill to the Cabinet Committee on Legislation for scrutiny before it was tabled by the National Assembly," Mushelenga said yesterday.

The decision to amend the act was also partly due to Export Processing Zone laws, which allowed companies to operate without paying taxes, but failed to attract new investments and create significant employment, eroding the country's tax base.

Former finance minister Calle Schlettwein announced this in February last year while tabling the income tax amendment bill, which called for scrapping certain incentives enjoyed by a handful of companies in Namibia.

Schlettwein said over the years, the government's evaluation of these incentives, which had been in place since 1995, have proven to be fruitless when matched with their desired intentions.

"The review of the EPZ regime concluded that the zero-tax holiday did not yield the desired outcomes in terms of attracting new investments and creating jobs, and created a loss for the government in revenue collection," he said.

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