A presumptive tax could be the best way of ensuring that the informal sector pays tax without the need for them to keep supporting documents for tax obligations,
Nangula Uaandja, Country Senior Partner of PwC Namibia, has argued in an interview with the Windhoek Observer this week.
She said tax authorities should relax the need for supporting documents when filling in tax returns because documentation is quite challenging and cumbersome work for most informal businesses.
“The accounting records in the informal sector can be quite challenging. Taxis do not give invoices, for example, so how does an informal trader claim for expenses on the tax forms?
“Instead of asking them all these things, why don’t you have a presumptive tax, and exclude them from all this bureaucracy,” the 2011 Namibian Businesswoman of the Year said.
The International Monetary Fund says presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer's accounts.
The term presumptive is used to indicate that there is a legal presumption that the taxpayer's income is no less than the amount resulting from application of the indirect method.
A debate has been raging this month after the Ministry of Finance announced plans to tax informal businesses including hair salons, taxi or bus business, hawkers and plumbing services, among others.
Uaandja said that everybody who earns above the N$50,000 per annum threshold must be taxed as required by the law.
She, however, is of the view that if the nation feels that the N$50,000 has been overtaken by the cost of living, then the threshold must be increased.
“If we as Namibians feel that there are a lot of people that are paying tax that should not pay, then let’s increase the threshold. It can be up to N$150,000. What that means is everybody who is earning below that level does not need to register for tax.”
She said increasing the tax threshold can be the best option given concerns that taxing the informal sector and the formally employed low earners will make them poorer.
Uaandja said government must make sure that the tax system is fair, just and equitable to everybody, adding that if tax collection for high earners is improved, it would bring relief to low income earners.
She noted that there are a number of people that are earning a lot of money that are hiding in the informal sector.
“The Meme Kapanas earn less than N$50,000 per year, but there are others earning millions and driving cars and hiding in the informal sector, these people must pay tax.”
Finance Minister, Calle Schlettwein, recently said that pamphlets released by the ministry were aimed at drawing the public attention to the fact that any person or company generating revenue from any trade which is above the required threshold, is subject to income tax and should be registered and comply with tax laws.
“Consider, for instance, a case where an Administrative Officer working for government or private sector earning N$8,000 per month and pays payroll tax as normal and compare that to a corner shop or a hair dresser earning on average N$60,000 per month, but not paying tax. Tax policy is about equity and fairness.”