MINISTRY OF FINANCE INLAND REVENUE DEPARTMENT PRESENTED BY: NADINE DU PREEZ DEPUTY DIRECTOR:LEGISLATION, TAX POLICY AND INTERNATIONAL MATTERS 15 OCTOBER

CONTENT 1) RING-FENCING 2) PROPOSED INCOME TAX AMENDMENTS 3) PROPOSED VAT AMENDMENTS 4) PROPOSED TRANSFER DUTY AMENDMENTS 5) EXPORT LEVY BILL 6) UNDER ESTIMATION OF PROVISIONAL TAX PENALTIES 2

RING-FENCING OF ASSESSED LOSSES – SECTION 21 A. – INCOME TAX ACT NO 24 OF 1981 Ring Fencing Meaning: Each individual / source of income or loss is fenced separately. The loss is contained by the ring-fencing, thereby not allowing it to have any impact on other sources of income. Is an anti–avoidance measure in terms of which the expenditure incurred in conducting a trade is limited to the income of that specific trade.  APPLIES TO NATURAL PERSONS CARRYING ON TRADE – not to companies, close corporations, trusts etc.  The pre-requisites for ring-fencing to be applied The ring-fencing of a trade loss can only occur when the pre-requisites in subsection (2) are present. As soon as these circumstances are present, the loss will be subject to potential ring- fencing. DUAL REQUIREMENT These circumstances are as follows: 1) the taxable income, before deducting assessed losses, for the year of assessment in question must be equal to, or exceed N$ ; 2) and either one of the following requirements is met - - the taxpayer has, during a period of five years ending on the last day of that year of assessment, incurred an assessed loss in at least three years of assessment (any trade) or -the trade in respect of which an assessed loss was incurred falls within the suspect trades listed in section 21A. (2) (b). 3

RING-FENCING CONTINUED The suspect trades listed in section 21A (2) (b) are- Sporting activities; Dealing in collectibles; Rental of residential accommodation (unless at least 80% of the accommodation is used for at least half the year by non- relatives of the taxpayer) Rental of vehicles, aircraft or boats (unless at least 80% of these assets are used for at least half the year by non- relatives of the taxpayer); Showing animals in competitions; Farming or animal breeding unless the person carries on these activities on a full-time basis; Any form of performing or creative arts; and Gambling or betting. 4

RING-FENCING CONTINUED When the pre-requisites for ring-fencing are present, but the facts and circumstances test has not yet been applied, an assessed loss from a trade is subject to potential ring-fencing. Facts and circumstances test - The “facts and circumstances” test is an escape clause by means of which an individual can prevent an assessed loss from a trade to be ring-fenced. - Various facts and circumstances are taken into account in considering whether that trade is a business, in respect of which there is a reasonable prospect of deriving a taxable income within a reasonable period. 5

RING-FENCING CONTINUED FACTS & CIRCUMCSTANCES TEST 1) Trade constitutes a business – activities 2) Reasonable prospect and reasonable period 3) Special factors to be taken into account: a) Proportion of gross income in relation to expenses b) Level of activities carried on by taxpayer/ expenses incurred for advertising & promotion c) Commercial manner in which business is carried on taking into account: - No of full time employees - Commercial setting of the premises - The extent of the equipment used exclusively for trade - Time taxpayer spends at the premises conducting specific trade 4) The number of years of assessment where trade incurred losses versus total trading years taking into account: - unexpected events - nature of business involved 5) Business plans of person 6) Extent to which assets attributable to specific trade are used/ available for use by taxpayers relatives for private use. 6

RING FENCING CONTINUED AUTOMATIC RING FENCING ‘6 out of 10 – year’ rule – Subsection (4) - the 6 out of 10-year rule is applicable to all the listed suspect trades. The escape clause is no longer available where the taxpayer has incurred losses in at least 6 out of the last 10 years of assessment. With effect from the 6th year in which a loss arises from the suspect trade, the loss will be ring-fenced permanently. The 2018 year of assessment will be regarded as the 6th year should continuous losses, as from 2013 tax year occur. 7

RING FENCING CONTINUED Other Matters 1) Multiple farming activities deemed to be a single trade – section 21A. (7) 2) Taxpayer obligated to state nature of business if taxable income exceeds N$ and made losses in 3 out of 5 years or carrying on a suspect trade. 3) Assessed losses incurred before the law became effective – not taken into account 8

INCOME TAX PROPOSED AMENDMENTS Reduce withholding tax rate imposed on managerial, consultative, and technical services to 10%; Introduce withholding tax at a rate of 10% on interest paid to non – residents Introduce a definition of “Namibia” into the Income Tax Act; Provide for taxation of restraint of trade payments; To tax the proceeds from the sale of a petroleum licence or right to explore, develop and produce petroleum To set royalties rate at 10%; To strengthen the recovery provisions on tax; To provide for penalties in the event of any failure to pay non- residents shareholder tax, royalties and withholding tax on interest.  9

VAT PROPOSED AMENDMENTS ▫ Increase of Vat threshhold from N$ to N$ ▫ Mandatory security requirement for the importation of goods on a vat import account ▫ Introduction of a threshold for voluntary vat registration at N$ ▫ Prescription of criteria for voluntary vat registration and granting of vat import account ▫ Strengthen recovery of tax - liability of shareholders for tax debts ▫ Vat period for voluntary vat registration – 6 months 10

PROPOSED TRANSFER DUTY AMENDMENT 1 ) Levy Transfer duty on shares and member’s interest proportionate to market value of property ( residential, commercial and farmland) 2) If more than 75% of the assets of the company comprises immovable property, transfer duty to be imposed on the price or value of the share whichever is higher 3) Levy transfer duty on the price of shares in the case of mineral rights or licences 4) Levy transfer duty of 5% on price of shares in case of mineral rights/ licences 5) Inclusion of specific anti- avoidance provisions in relation to the price of shares 6) Reduction of transfer duty rate of companies from 12% to 8% 7) Exclusion of shares traded on stock exchange for purposes of transfer duty 8) Divided shareholding transfer duty for natural persons 11

Export Levy Bill - STATUS Export Levy Bill – levies on minerals, fish and forestry products Differentiated rates ranging between 0% and 2% on minerals, fish products and forestry products Final alignment of Bill to Customs procedures. 12

PROVISIONAL TAX ESTIMATION - PENALTIES  Penalties in the event that the taxable income is being underestimated – Schedule 2 - Par. 20 First Provisional Tax payment First 6 months – estimation is less than 80% of total taxable income as finally determined for 1 st 6 months/ 50% of total taxable income for 12 months - Penalty equals the amount between the tax paid (1 st provisional payment & employee’s tax paid) and the actual tax payable on 80% of taxable income for first 6 months 13

PROVISIONAL TAX ESTIMATION - PENALTIES CONT….. Second Provisional Tax payment 12 months – estimation is less than 80% of total taxable income as finally determined for 12 months - Penalty equals the amount between the tax paid (1 st & 2 nd provisional payment & employee’s tax) and the actual tax payable on 80% of final taxable income for 12 mon ths 14

Thank You! ANY QUESTION? 15