1 MINISTRY OF FINANCE INLAND REVENUE DEPARTMENT PRESENTED BY: NADINE DU PREEZ DEPUTY DIRECTOR:LEGISLATION, TAX POLICY AND INTERNATIONAL MATTERS 15 OCTOBER 2014 2 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 3 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) . 4 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. 5 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. 6 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. 7 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. 8 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 9 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. 10 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 11 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 12 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. 13 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 14 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 15 Thank You! ANY QUESTION?