Diamond polishing companies currently operating within the soon-to-be-phased-out Export Processing Zone (EPZ) regime, where they enjoy a zero-tax holiday, will be catered for by transitional measures by the which is being finalised by the Ministry of Finance and other relevant government departments. According to Finance Minister Calle Schlettwein, repealing EPZ and manufacturing tax incentives should restore international confidence in the country and prevent a loss of government revenue.
The repeal of the contentious tax incentive policy is partly to meet a 2021 deadline set by the European Union for Namibia to avoid being blacklisted as a tax haven. The ousting of the EPZ regime will affect at least 19 companies operating in the manufacturing, diamond cutting and polishing, and motor vehicle assembly sectors, including a copper smelter owned by Dundee Precious Metals and a zinc refinery owned by India’s Vedanta.
“The EPZ regime will be phased out and replaced by the Special Economic Zone (SEZ) regime, currently being finalised. The policy framework for the SEZ model will set policy provisions that define the governance structure, applicable investment incentives and guide the transition from EPZ to the SEZ incentives. The SEZ regime will strengthen the investment incentive policy function in Namibia. The SEZ regime will not contain the same zero tax rate incentives, as under the EPZ regime. Tax benefits will be those applying to Namibian business operations under the tax laws such as tax depreciation of machinery, deductibility of expenditure, rebates and duties according to international protocols such as the SACU agreement etc,” Schlettwein explained in response to questions from New Era’s Inside Business.
Schlettwein confirmed that the SEZ regime will provide for transitional measures, and non–tax investment incentives.
Companies with EPZ status enjoyed a complete or zero tax holiday in Namibia on all taxes. The complete tax relief for EPZ enterprises applies for an indefinite period or for the lifetime of the approved project in the country. The EPZ regime was intended to attract foreign investment, facilitate import of foreign productive capital and technology, transfer of technical and industrial skills to the local workforce, contribute towards an increased share of Namibia’s GDP, enhance diversification of the local economy and create employment.
A recent 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 but instead resulted in a loss to government in revenue collection.
Now, the repeal of the EPZ regime from a taxation perspective will alter the zero tax holiday enjoyed under this regime.
Said Schlettwein: “Fiscus does not receive tax revenue from operations under the EPZ regime (EPZ have total tax holidays). With the abolishment and phasing out of the EPZ regime, to be replaced by the SEZ regime, the tax revenue loss which persisted under the EPZ regime will be mitigated.”
– ebrandt@nepc.com.na