Windhoek
People with exploration and mining licences as well as mineral rights will no longer be able to sell their licences or rights without paying tax on the profits from the sale of those licences.
Although at present the sale of exploration licences and mineral rights are taxed, the Treasury says “licences and rights in the extractive industry have become trading commodities and income is generated from the sale of these licences”, with no apparent benefits to the country’s mining and petroleum sectors.
It would not matter if the licence were held through a trust, or in partnership through allocated shares. Any change in share allocations or change in a member’s interest in the company holding petroleum licences or rights would compel the Treasury to charge income tax.
In addition, any payment for “restraint of trade” to companies and individuals would in future also be subjected to income tax. “Restraint of trade payment” is a common feature in mining and petroleum prospecting circles to prevent licence sellers, or those with interests in the licence, from pursuing similar ventures in partnership with others.
When defining payment the Treasury says it is “any amount, whether in money or in kind,” received by a person or company as compensation for any restraint of trade imposed on the person or company.
Treasury is also closing the gap on directors’ fees on the grounds that many directors do not pay any income tax on earned directors’ fees.
Payment for licences includes “any amount received or accrued in money or in kind as consideration or payment”, including sale, donation, expropriation, cession, grant or other transfer or alienation of ownership in a petroleum licence, or right to mine in Namibia.
These changes are all part of the new amendments to the Income Tax Bill that Finance Minister Calle Schlettwein tabled in parliament this week. The licences include prospecting and mining licences, as well as petroleum licences for exploration, reconnaissance and production.
“The objective of the taxation of profits from the sale of petroleum licences is to ensure that Namibia receives its fair share on the sale of petroleum licences and rights, and to deter licence holders to sell licences for a profit without exploring and growing the petroleum industry,” he told parliament on Tuesday.
The other amendment is to income earned from activities conducted within Exclusive Economic Zones in the country, as well as a fixed taxation rate of royalties to non-residents.
Further the Treasury says the amendments will penalise persons for not withholding tax from royalties or dividends, which the current Act does not address. “This has the effect that dividend payers and royalty payers omit to withhold the tax imposed by the law. An administrative penalty of 10 percent is to be introduced,” Schlettwein said.
The good news is that the Treasury would reduce the non-mining company tax rate from 33 percent to 32 percent “to incentivise businesses to reinvest and expand their operations, thereby creating more economic opportunities and growing the economy.”
However, Treasury would also now collect 10 percent tax on interest accrued in Namibia, a move which Schlettwein says aims to “deter multinational companies and connected organisations to engage in loan arrangements as a means of reducing or postponing tax liability of the Namibian enterprise.”
At present interest paid to non-resident persons, organisations, businesses or institutions that provide loans to Namibian business, are not taxed, as these businesses or individuals do not have any presence in Namibia.
Nevertheless, Treasury says this creates a distortion in the tax system, as the interest paid by the Namibian business is deducted for income tax purposes.
“This may also create the opportunity for multinational companies having Namibian branches to use loan arrangements to avoid or postpone tax liability by paying large amounts of interest to their counterparts in foreign jurisdictions under the auspices of a loan received from the foreign counterpart, thereby avoiding or postponing their tax liability in Namibia,” the finance minister said.