Minister of finance Iipumbu Shiimi last week said the short transitional period of one year poses a challenge for affected companies in terms of preparedness to exit from the previous incentivised tax regime to a normal tax system.
In this regard, the finance ministry successfully engaged the European Union (EU) for this transitional period to be prolonged to a period of five years.
“The process of engaging the EU took longer than expected; hence, the legislation process to give effect to the new transitional period was also delayed.
“This is what led to the late submission
of this Bill,” Shiimi explained in Parliament last week while motivating amendments to and the repeal of certain provisions of the Income Tax Act that grant income tax incentives to registered manufacturers to provide for continued operation of repealed provisions for a specified period and to provide for certain incidental matters.
On 22 February 2021, European Union (EU) removed Namibia from the list of non-cooperative jurisdictions regarding tax matters.
According to Shiimi, Namibia was removed from the list for its commitment to implement criteria set by the EU, including the abolishment of tax incentives and exemptions provided for registered manufacturers and Export Processing Zone (EPZ) operators under the Income Tax Act and EPZ Act.
According to the finance minister, these tax incentives and exemptions have been identified as harmful tax regimes by the EU.
Shiimi noted the crucial legislation will have untenable ramifications if not enacted by 31 December 2021.
The finance minister continued that the abolishment of manufacturing tax incentives and exemptions for EPZ regime was affected by repealing relevant sections in the Income Tax Act and EPZ Act.
He said the repeal of these sections was done through the amendment of the Income Tax Act, which commenced on 31 December 2020, but also provided for a transitional arrangement for the current registered manufacturers to continue enjoying these benefits until 31 December 2021.
Iipumbu said affected companies argued that investment decisions were made based on these tax exemption offerings, and removing them abruptly without allowing them reasonable time to transition into the tax net system threatens the viability of their businesses as going concern entities. This is why some of these manufacturers pleaded with government to intervene and address their plight.
“It is of utmost importance that this Bill is enacted by 31 December 2021; otherwise, it will be illegal for current registered manufacturers and EZP operators to continue enjoying the tax exemption benefits beyond 31 December 2021.
Not allowing affected companies a longer grandfathering period will harm their businesses and the economy at large,” he cautioned.