Minister Calle explains solidarity tax

MINISTER of finance Calle Schlettwein said yesterday that the solidarity tax will be introduced as an income tax for individuals according to their income scale.
He said the tax will also be a flat amount levied from juristic persons (closed corporations, partnerships, trusts and companies), based on the average per capita income for Namibia as indicative threshold to determine who should contribute and who should benefit.

The minister who was speaking during a breakfast meeting yesterday said people with an income above US$5 700 (about N$79 000) per year will contribute to the tax, while those earning below that may benefit. It is estimated that an amount of N$600 million will be raised annually from this source, he said.

“We used the average per capita income for Namibia as a threshold to determine who should contribute and who should benefit,” the minister said.

Schlettwein said it has been proposed that the proceeds will accrue to a dedicated fund under the Ministry of Finance and the Office of the Prime Minister.

He said the Ministry of Finance, the National Planning Commission and the Ministry of Poverty Eradication and Social Welfare will coordinate programmes under the fund. The criteria for fund allocation will be developed for targeted activities on poverty reduction.

“The fund will be established through parliamentary approval and subjected to regular audit and accountability measures,” he said.
He said the establishment is based on existing per capita income and it has a sunset clause that, once the Gini Coefficient reaches about 40%, the fund would have reached its objective.

“In this context the proposed solidarity tax actualises our declared war on poverty from the fiscal front,” he said.
Namibia’s Gini Coefficient at the moment is close to 60%, making the country one of the most unequal societies in the world.

The Gini index measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution. An index of 0 represents perfect equality, while an index of 100 implies total inequality.
“Tax policy should increasingly contribute to revenue raising and the attainment of socio-economic objectives, while tax administration reforms should increasingly improve the yield and buoyancy of the revenue streams,” he said.

Schlettwein said the Revenue Agency policy framework has been approved by Cabinet and “we have proceeded to draft the establishing law. Next year, I will launch the Integrated Tax System.

“For fairness, equity and benefit principles of the tax system, we should close the tax gap. The modalities for the introduction of the presumptive tax are being developed. We have teamed up with platforms for regional and international tax cooperation to increasingly protect our revenue base erosion and stem the evils of transfer pricing and illicit flows,” he said.

Schlettwein said in a society characterised by high inequalities of long duration, the well- to-do should be seen contributing more to the fight against poverty and helping fellow citizens to rise out of poverty, hence the solidarity tax.

The ministry is also investigating the modalities for introducing a presumptive tax on the informal sector and small units to broaden the tax base and achieve greater fairness of the tax system, he said.
According to Schlettwein, the informal sector accounts for about 30% of the economy.