MINISTRY OF FINANCE

INLAND REVENUE DEPARTMENT

PRESENTED BY:

NADINE DU PREEZ

DEPUTY DIRECTOR:LEGISLATION, TAX POLICY AND INTERNATIONAL MATTERS

15 OCTOBER 2014

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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

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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 REQUIREMENTThese 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$200 000;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) .

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RING-FENCING CONTINUEDThe 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.

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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.

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RING-FENCING CONTINUEDFACTS & CIRCUMCSTANCES TEST1) Trade constitutes a business – activities2) Reasonable prospect and reasonable period3) 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 person6) Extent to which assets attributable to specific trade are used/ available for use by taxpayers relatives for private use.

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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.

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RING FENCING CONTINUED

Other Matters1) 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$200 000 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

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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.

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VAT PROPOSED AMENDMENTS

▫ Increase of Vat threshhold from N$200 000 to N$500 000

▫Mandatory security requirement for the importation of goods on a vat import account

▫ Introduction of a threshold for voluntary vat registration at N$200 000

▫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

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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

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.

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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 1st 6 months/ 50% of total taxable income for 12 months - Penalty equals the amount between the tax paid (1st provisional payment & employee’s tax paid) and the actual tax payable on 80% of taxable income for first 6 months

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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 (1st & 2nd provisional payment & employee’s tax) and the actual tax payable on 80% of final taxable income for 12 months

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Thank You!

ANY QUESTION?

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