Unit 1: Tax Administration

ATP3781 Taxation 1A

Bachelor of Accounting [NQF Level 7]

By

Dr Eukeria Wealth
Department of Auditing & Tax
School of Accounting
LEARNING OBJECTIVES

• To outline the purpose of taxation

• To list the canons of taxation

• To explicate the bases of taxation

• To identify categories of taxation

PURPOSE OF TAXATION

• Revenue generation & restoration of macroeconomic stability

• Wealth redistribution to promote equity in the society
• Stir economic policies, such as fiscal policy.
• Help control international trade
• To protect local industries
• To discourage consumption of demerit goods.

• From the above statements it can be deduced that the essential characteristics of a good tax
system are:
CANONS OF TAXATION

Adam Smith’s Canons of Taxation

1. Equity principle
• Every member of the state should contribute towards the burden of tax.
• Tax should be imposed according to the ability to pay.
2. Certainty
• The tax liability ought to be exact, not arbitrary.
3. Convenience
• Taxes should be imposed in a manner that is convenient for taxpayers.
4. Efficiency
 Tax administration should be designed in a manner that does not impose an unreasonable burden on the taxpayer.
BASES OF TAXATION

 A country can adopt either a source based or a residence based tax approach.
 A residence based tax approach is adopted by a country that seeks to levy tax on income, capital;
property etc. accruing to its residents regardless of its source.
 A country that adopts source based tax system levy taxes only on income, capital, property etc.
that comes from within the boundaries of its borders irrespective of the person’s residence.
 Namibian tax system is source-based.

Question
 What are the pros and cons of source based and residence based tax systems?
CATEGORIES OF TAXATION

Direct taxes Indirect taxes

• These are taxes levied on income and wealth • Are borne by someone other than the
of individuals and companies. The burden person responsible for paying it and
of these taxes is borne by the person (both
natural & juristic) who is responsible for
are largely related to consumption.
paying taxes i.e. • For example, sales tax, value added
• Corporate tax – tax on business income tax, custom & excise duty etc.
(profits).
• NB: The key difference between
• Pay as you earn – tax earned by individuals direct and indirect taxes is one is
from employment.
regressive and the other progressive.
• Investment income – tax on dividends and
interest.
Indirect taxes tend to be regressive,
while direct taxes are progressive in
• Estate duty tax – on the property of a
deceased person etc.
nature. .
REGRESSIVE & PROGRESSIVE TAXES

Progressive Taxes
this is represented by the increase in the tax rates as
income increases. They vary in direct proportion with the
level of income e.g. PAYE which starts at 0%, and
increases to 18%, 25% and so on. The more you earn the
more tax you pay.

Proportional Tax
is one in which the effective rate of taxation remains
constant as the income of the taxpayer increases. Good
examples would be property tax and the tax rate on
corporate companies and close corporations that are fixed.

Regressive Taxes
this is represented by a flat tax rate and is not determined
by the size of income base. In other words, they have a
relatively greater impact on the poor e.g VAT.
CHARACTERISTICS OF PROGRESSIVE, PROPORTIONAL
& REGRESSIVE
Progressive Proportional Regressive
takes a larger percentage of takes the same percentage of takes a larger percentage of
income from high-income income from all income groups income from low-income
groups groups
than from low-income groups than from high-income groups.

In Namibia, individual tax Someone who earns N$25,000 If someone makes N$20,000 a
ranges from 18% to 37% annually would pay N$1,250 at year and pays N$1,000 in VAT
depending on income level a 5% rate, whereas someone on consumer goods, 5% of their
who earns N$250,000 each year annual income goes to VAT.
would pay N$12,500 at that But if they earn N$100,000 a
same rate year and pay the same N$1,000
in VAT, this represents only 1%
of their income.

Reduces income inequality Can be regressive Widens income inequalities

Can be difficult to administer Easy to administer a constant Can be difficult to administer
because of different tax rates tax rate despite income levels because of diff tax rates
NAMIBIAN TAX

 Revenue laws of a country are issued out by the parliament.

 Namibia Revenue Agency (NamRA) is a statutory body responsible for

enforcing the tax laws.

 The duties mandated to NamRA include, collection of tax, accounting for these
taxes and ensuring that the tax laws are complied with, should be presided by
the Commissioner, whose duty is mainly to represent NamRA in carrying out
its mandate
OVERVIEW OF TAXATION IN NAMIBIA

• The Namibian Constitution of 1990 with • Customs and Excise Act No 20 of

Amendments through 2010; Chapter 16, sets 1998,; which provides for the
out the principles that guide all aspects of
public finances in Namibia.
imposition, collection and
• The Namibia Revenue Agency (NamRA),
management of customs, excise and
which was established by the Namibia other duties (i.e. levied on imported
Revenue Agency Act, No12 of 2017 is goods).
responsible for the collection of taxes and • Value Added Tax 10 of 2000, which
other revenues. In the collection of taxes, provides for the taxation in respect of
NamRA derives its mandate from the
following:
supply of goods and services and the
• Revenue Agency Act, No12 of 2017.
importation and exportation of goods
• Income Tax Act No 24 OF 1981; which • Transfer Duties Act, No 14 of 1993.
provides for the taxation of income (i.e. Pay • Export Levy Act, No 2 OF 2016.
As You Earn (PAYE) - chargeable on • Petroleum Taxation Act, No 3 of 1991.
employment income; Corporate Income Tax
– chargeable on trade and investment • Stamp Duties Act, No 15 OF 1993.
income.
NAMRA POWER & FUNCTIONS

Assess and collect Assess and collect taxes and duties on behalf of the State•

Receive and record Receive and record all State revenue on behalf of the State•

Enforce Enforce the revenue, customs and excise laws, with respect to the collection of revenue as provided by those laws•

Levy penalties and interest on overdue accounts, collect unpaid taxes and impose liens over properties, as provided by
Levy revenue laws•

Provide customs and excise services that facilitate trade, maximize revenue collection and protect Namibian borders from
Provide illegal importation and exportation of goods•

Improve Improve service delivery to taxpayers and promote compliance with the revenue laws
DUTIES & RIGHTS OF THE COMMISSIONER

To administer and To have access to all To appoint tax Power to require

manage the activities public records collection agent information, search or
of the Revenue Agency entry
INCOME TAX RETURNS (Sec 56; 60)

 A liable person has to submit an income tax return

 This includes the computation of the tax due

 Namibia adopted the self-assessment system, a system where a taxpayer is

required to determine his /her tax liability.

 The return can now be submitted online on the NamRA website

 A person who files a return shall be assessed to tax based on the return
submitted.

 The full name and address of recipient and amount paid by a company in
terms of dividends or interest on debentures/ loans must be submitted to
NamRA
TAX ASSESSMENTS [Sec 67]

 Namibia adopted the self-assessment system, which is a system where a taxpayer is

required to determine his /her tax liability.

 NamRA launched an e-filing system called Integrated Tax Administration System (ITAS) in
January 2019 which allows real-time access and feedback.

 If a person fails to render a return, or fails to disclose his tax affairs in his return, NamRA
will proceed to issue an estimated assessment or additional assessment. A reduced
assessment may also be issued for a taxpayer who has been overtaxed (Sec 69).

A notice of assessment will include:

 Details of the assessment & the amount payable
 Due date for payment
 That any objection to the assessment must be lodged in writing within 90days from the
date of issue of the notice
 The place where an objection to an assessment must be lodged
OFFENCES AND PENALTIES [Sec 65 & 96]

Violating tax laws is an offence that may attract a fine of not more than N$300 or
imprisonment for a period not exceeding 3 months.
Examples of such offences include:

i) Failure to file or submit returns

ii) Failure to furnish the commissioner with any information or documents required
by him
iii) Failure to disclose any amount of gross income accrued or received to or in favour
of himself
iv) Obstructing or hindering any officer in the discharge of his duties

Evading tax or assisting anyone to evade is liable to a fine not exceeding N$2000 or
imprisonment up to 2 years or both. This may entail:

v) Falsifying documents or statements

vi) Fraud
vii) Giving a false answer
BURDEN OF PROOF (Sec 72)

 The onus to prove that an amount is not subject to tax or subject to deduction
or rebate is upon the taxpayer not NamRA.
OBJECTIONS AND APPEAL [Sec 71-77]

 Should be lodged within 90 days of assessment

 Where no objection is submitted the assessment will be deemed final
 If the taxpayer is not satisfied he can appeal to the tax tribunal court first if;
i) The amount of tax involved does not exceed N$100000
ii) The Commissioner and the taxpayer agree thereto
iii) No objection is made to the jurisdiction of the tribunal to hear the appeal

 If the commissioner deems the Special court to be most appropriate, or the taxpayer is not
satisfied with the outcome of the tribunal, the matter may be referred to the special court
for tax appeals within 30 days
 If the taxpayer is not satisfied with the outcome, he can appeal to the Supreme Court of
Namibia within 21 working days after the special court notice.

 Pay now argue later (Sec 78)

The taxpayer still needs to settle their tax obligations even if there is an objection, appeal
or pending decisions.
RETURNS & PAYMENTS (Sec 94)

Returns Payments Due

Individuals (employees) 30 June each year
Companies Within 7 months after financial year end
Taxpayers (others carrying on Within 7 months after financial year end (30
business/profession/farming) September)
Provisional tax returns
Companies
Income tax: 1st provisional Within 6 months from the commencement of the
company’s financial year; 40% of the total actual
taxable income to be declared and paid
Income tax: 2nd provisional On/ before the last day of the company’s financial
year end.
PENALTIES & INTEREST

Tax Reason Penalty Interest

Income Tax Late submission N$300 (not levied None when no
return often in practice) payment was due
Late payment 10% once off payment 20% per annum
Ommission/ incorrect Up to 200% 20% per annum
statement
RIGHTS OF TAXPAYERS

o Rights to certainty

o Rights to equality

o Right to confidentiality

o Right to pay not more than the correct amount

o Right to facilitation of tax compliance

TAX INCENTIVES

• Tax Amnesty

• Tax holidays

• Rebates

• Boot

• Exporters

• DTAs

• SMEs
CONTEMPORARY ISSUES

• Income Tax Act amended in 2022 [Act No 13 of 2022]

• Introduced Thin capitalisation Rule of 3:1 [Sec95A of the ITA]

• Pension, retirement & education policy contributions by individuals raised from

N40000 to N150000

• Interest and penalties to tax due, when the total amount due is not paid in full, the
payment should be spread into three components:

• 1st the tax due

• 2nd the interest due
• 3rd the penalty due
• Reduced corporate non-mining tax rate by 2% to 31% effective April 2024 and 30%
effective April 2025
• Individual minimum tax threshold increased from N$50000 to N$100000
SELF REVIEW QUESTIONS

1) Describe the four tenets (principles) of tax as pronounced by Adam Smith (8 marks)
2) Describe the main purpose of taxation in a modern economy (3 marks)
3) Why would a government choose to levy either progressive or regressive tax (4
marks)
4) What is the difference between a progressive tax and a proportional tax? (2 marks)
5) Explain the difference between direct and indirect taxation, giving one example of
each (2 marks)
6) Namibia recently scrapped tax incentives for manufacturers. What were the basic
facts? What were the shortcomings of these incentives that may have contributed to
their abolition? (5 marks)
7) Compare and contrast source-based and residence-based tax systems (4 marks)
8) Namibia’s individual tax threshold has increased from N$50000 to N$100000. Discuss
the implications of this change. (4 marks)
9) Explain four contemporary issues in the Namibian tax system (8 marks)
10) Discuss the challenges faced by tax authorities in Africa. (10 marks) [Total 50
marks]
Thank You