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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 ringfencing.
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$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 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 nonrelatives 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 nonrelatives 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 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.
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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 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$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
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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?