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Opinion - Hybrid taxation vs economic recovery

2020-11-27  Staff Reporter

Opinion - Hybrid taxation vs economic recovery

At the earliest of time, in the days of independence, most African countries mooted various ambitious economic growth visions, which in our case, is referred to as Vision 2030.  
These development visions formed a compact of economic growth strategies on the economic planning and growth ladder. As sovereign maturity was realised, sadly the states celebrated their respective independence gains in poverty, budget deficits, external borrowings, high unemployment, social disorientation, serving as unintended visible dividends of political independence. 

These developmental visions, have in the worst case scenario than ever thought of, become cataracts to impair both the political and economic sight of leadership and have only been realised through the external hand of aid from multilateral institutions such as IMF and the World Bank, to mention, but a few.  
Question: Is Africa a continent of economic mismanagement? 

Thirty years after independence, Namibia still battles with increasing social evils experienced by many African countries in their later years of sovereign maturity, such as high unemployment, poverty, budget deficits etc. While it is true that these evils are visible, they don’t stand to offset Namibia’s developmental achievements. Attempting to merely averaging the level of Namibia’s achievement without understanding why government is struggling to address these issues, is purely a display of intellectual insolvency and a betrayal of human conscious.

Unlike many highly industrialised and developed nations with ingenious driven economies, Namibia and South Africa, are among the first countries to adopt the social safety net program on the African continent.      
A different perspective narrative in increased prominence is that Namibia has enough resources to reduce poverty and afford equitable allocation of benefits to all its citizens to live a life of decency. That is true. But, why is government constrained to realise this?   

It defeats any logic and hardly suffices in good faith to only advance a barrage of condemnations, without critically looking at the principal causes of government’s constrained ability to address some of the social ills.  

The tax instrument, (the Income Tax Act) that Namibia uses as a revenue generating taxing instrument is pure hybrid because it provides only for taxation of personal income on marginal basis on one hand and the taxation of corporation income on explicit roll back basis on the other. In other words it is a Tax Act that serves these two extremes so that in between there are no safety net provisions to increase its abilities to tax economic activities in an open economy as should be required. This damaging oversight contributes to government’s constrained revenue generation abilities and pushes treasury in an infinite budget deficit position.    

Another unpleasant reality, is that Namibia is the only country on the African continent which has been deliberately chosen and placed under a spotlight to be a victim of a double effect externally interposed harmful tax regime with intent to collapse the economy and wrap the country in a glittering foil of poverty. The externally interposed economic collapsing harmful tax regime was designed and sophisticatedly crafted to cripple the economy and more so, that if the regime is not addressed, indeed Namibia has to be packaged as a country that has economically failed in order to stir public mistrust in the leadership and justify that African leaders cannot handle economic affairs. In the midst of all these economic crippling effects, (i.e the regrettable use of a hybrid taxing instrument in an open economy and the presence of an interposed harmful tax regime that was loaded and interposed 21 years ago),  the Namibian government has, to the contrary,  remained afloat to sustain the delivery of infrastructure development and maintained the commitment to its social safety net provision, attracting continental accolades as the best country in road infrastructure on the African continent, when other countries at the age of 30 years of sovereign maturity, were found to be at IMF and  World Bank Cheshire  SOS houses undergoing economic rehabilitation and other fiscal dosage prescriptions as a precondition to  accessing the external aid.    

What looks like a proven case that African leaders cannot manage their respective economies is in fact, a calculated strategy from the rapacious neocolonialists that use taxation structures as weapons to destroy the economies in order to create a fertile ground to architecture political regime change. African countries, Namibia included, inherited hybrid taxing instruments without noticing that the moment you ratify Double Taxation Agreement but continue to use the same Tax Act, a dangerous loophole is created to load or interpose an economic collapsing harmful tax regime. Africa’s economic agony is traced to the practice of rushing to undertake economic planning programs without matching these programs with taxation planning.  There is no economic plan that can realize the sustained growth objectives and goals in the absence of an effective taxation plan as a critical component of economic planning and a central tool of revenue generation.  Those that design harmful tax regimes to collapse economies have an established view that Africa does not have capacity to understand taxation.  Equally, Africa nations are inclined to a propensity that Income Tax Acts are only instruments for revenue generation purposes, without knowing that they are also used as tools to protect or destroy state sovereignty.    

Indeed, Africa’s capacity to arrive at correct numerical tax assessment is compromised because it is very far from comprehending the nitty-gritties of structural taxation which is critical and an influencing factor in revenue generation to support public spending and economic growth.  Reference cases to amplify the argument that African countries lack capacity to handle structural taxation are visible. In recent years, Senegal decided to tear-apart the Double Taxation Agreement that the country signed with Mauritius. Many countries are believed to be following the same route. Why are African countries deciding to cancel DTAs instead of interpreting them?  Double Taxation Treaties are the central point of economic poison and are used to load economic collapsing harmful tax regimes when there is no capacity to interpret them. Sadly, Namibia is an innocent bleeding victim of the same. Will Namibia follow the route of placing the notorious DTAs in the dust bin?  Cancelling DTAs creates diplomatic wrinkles of anger and unnecessary misperceptions. Interpretation is the best solution since interpretations creates revenue generation streams and a win-win situation without any diplomatic wrath.  

Structural taxation  is a compact package that  includes, capacity and knowledge to understand  the character of the Income Tax Act that the country uses,  assessing if the Income Tax Act is aligned to the model of the economy, establishing the tax structures that exist within the model,  establishing the factors that have transformed the model of the economy, (i.e. assessing if the  economic model is transformed by the scope of the bilateral tax treaties, or an investment regime),  assessing if the Income Tax Act  is strong enough  to stabilize the revenue base (i.e. countering capital outflow),  if the Income Tax Act is strong enough  to stabilize the tax base, (i.e. countering tax evasion and avoidance),  capacity to interpret the bilateral tax treaties, (both administrative treaty interpretation and treaty ratification interpretation),  ability to detect the harmful tax regime and the tax structures that the regime uses etc. Treaty interpretation without the knowledge and expertise in understanding structural taxation is a nose bleeding exercise.     

Innocently, the Namibian government is assembling economic revival efforts and strategies in the midst and presence of an interposed harmful tax regime, using a pure hybrid taxing instrument to generate sufficient revenues in an open economy whose model has been transformed.  The leadership need to be guided to take the right direction in reviving the economy which among other things should include undertaking: transformation of the Income Tax Act from pure hybrid to Hybrid safety net, countering the harmful tax regime and the tax structures that the regime uses, interpreting the bilateral tax treaties that the country currently administers, restoring both the revenue base and tax base from artificial to original. Period!


2020-11-27  Staff Reporter

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