Finance Minister, Calle Schlettwein has hit back at calls by the European Union (EU) for Namibia to reform its tax regime.
The EU wants Namibia to remove its manufacturing incentives because it suspects that they could be used for tax evasion.
“The EU wants Namibia to make changes to its tax regime but the proposed changes were unilaterally created and it’s wrong for Namibia as a sovereign state to be expected to make changes to its laws without taking its own interest into consideration,” Schlettwein said this week.
“The decision is unilateral and partisan.”
Schlettwein said Government believes removing the incentives would hurt efforts to promote local manufacturing.
“The Government emphatically rejects this assessment,” he said.
The minister said the EU perceives Namibia’s tax incentives for manufacturing to build its manufacturing capacity as potentially harmful and Namibia has problems in being forced to abandon schemes meant to improve manufacturing in the country.
“We believe that as a developing country, we must improve our capacity. It’s unfair to say, we should not improve our capacity.”
Namibia offers attractive fiscal incentives to investors via its Export Processing Zone (EPZ) regime.
Companies registered as Export Processing Zone entities pay between zero or 32 percent (dependent on the export destination).
Namibia was on Tuesday blacklisted by the EU together with 16 non-cooperative jurisdictions for tax purposes.
Recently officials from the Inland Revenue Department met with officials from the EU Delegation to Namibia to discuss this matter and to seek clarification on criteria.
Schlettwein said since not all explanations could be provided to all the ministry’s questions, it was agreed that further engagement with local EU staff and or EU tax experts from abroad was needed.
“After further engagement with the local EU staff, we were advised of the deadline to inform EU of our commitment to implementing proposed actions or how we react to them. Due to miscommunication we missed that deadline, but that does not make Namibia a non-compliant country or tax-haven.
“We are therefore perplexed to learn that the EU has revealed names of non-cooperative jurisdictions for tax purposes including on the 5th December 2017 which include Namibia,” he said.
In further defence of the country, the finance minister said cash flows in and out of Namibia are monitored by the Bank of Namibia.
“Before cash is introduced or leaves Namibia, the Bank of Namibia approves the application to move funds. The regulator, therefore, is made aware of the purpose of the cash flow to be satisfied that the cash movement is legitimate.”
Namibia has eleven double taxation agreements with several European countries, including Germany, the United Kingdom, France and Romania.
Schlettwein argued that Namibia was not on the list of the 15 Worst Tax Havens, which was published by Oxfam last year.
He, however, admitted that Namibia is exposed to illicit financial outflow as revealed in the recently published “Paradise Papers”.
The Namibian taxation system is not based on individual residency but where the income arises.
Individuals pay between 18 percent and 37 percent. Non-manufacturing companies pay 32 percent and with their opposites paying 18 percent. Mining companies excluding those mining diamonds, pay tax at 37,5 percent. The tax rate for diamond mining is 55 percent.