The Income Tax Amendment Act, 2022, came into force on 01 January with an objective, amongst others, to ensure that any income derived from the exploitation of Namibia’s natural resources is taxed.
This means whether such income is of revenue or capital nature, it will be taxed. In the previous financial year, which ended 31 March 2022, the taxman collected over N$60 billion, surpassing its collection target of N$49.4 billion.
According to the Namibia Revenue Agency (NamRA), the amended legislation strengths the taxation of income received on the disposal of ownership of a petroleum licence, or right to mine petroleum in Namibia, including direct or indirect disposal of interest in a company that holds a petroleum licence or petroleum right.
“The amount received from disposing off a petroleum licence, right to mine petroleum or interest in a company that holds the petroleum licence or right would be deemed to have accrued from the Namibian source irrespective: of whether the transaction was concluded in or outside Namibia; the place where payment of such amount is made; or the place where the funds from which payment is made are held. Therefore, such an amount is taxable in Namibia,” explained finance ministry spokesperson, Wilson Shikoto.
The amendment to the tax legislation also increases the threshold for the tax-deductible amount in respect of contributions to a retirement fund (i.e. pension fund, retirement annuity fund) and education policy. This means that as of the 2022/23 tax year, the aggregate of the amount that may be deducted in respect of these contributions is increased from N$40 000 to N$150 000. According to Shikoto, the increase in the deductible amount serves as an incentive for citizens to invest adequately for retirement and the education of the Namibian child.
Moreover, the amended Act also provides for the filing of a tax return or serving a notice of assessment in an electronic format. A specific provision allowing for furnishing a tax return or serving a notice of assessment through an online platform (i.e. Integrated Tax Administration System or ITAS), has been introduced. This provision enables and supports government efforts to enhance efficiency and effectiveness in tax administration through automation of processes.
In addition, the transforming tax payments allocation rule has also been changed. Unlike the previous system, where payments for tax were allocated in order of tax, penalty and interest, payments will now be allocated in the following order: tax, interest and lastly penalty. The objective of this approach to tax payment allocation aims to lessen the tax burden on and improve the ability of taxpayers to settle arrear taxes. The new rule is equally applicable to tax payments pertaining to Value Added Tax.
Furthermore, the new rule has strengthened thin capitalisation rules. As of 1 January this year, a limitation (of 3:1 ratio) in respect of tax deduction for interest incurred on inter-company loan has been introduced. An interest expense for a subsidiary on a loan received from a parent company is now limited to a deduction not exceeding a ratio of 3:1, if the parent owns at least 25% shares of such subsidiary or is entitled to at least 25% of the profit or dividends of such subsidiary. This provision is introduced to prevent companies within groups from shifting profits from Namibia to tax haven countries.
Meanwhile, NamRA may now contract third-party agents, including employers, to help it recover over N$68.8 billion it is owed by Namibian taxpayers. NamRA added it may also be forced to garnish bank accounts of defaulting taxpayers, using Section 91 of the Income Tax Act, which allows it to appoint a third party to collect outstanding taxes from defaulting individuals or businesses.
However, before appointing debt collectors, defaulters or debtors would be engaged and urged to make payment arrangements. The revenue agency has also resolved to offset any tax refund against any outstanding debt owed.