No major tax increases expected in National Budget: Kavari

24 Feb 2016 16:30pm
WINDHOEK, 24 FEB (NAMPA) - The introduction of the solidarity tax on wealth during the 2016/17 financial year might take the form of an increase in the marginal tax rate for relatively affluent Namibians.
This speculation is according to Investment Strategist at Capricorn Asset Management, Suta Kavari, who was responding to questions on his predictions for the tabling of the 2016/17 National Budget in Parliament on Thursday.
The government last year announced its intention to introduce a solidarity wealth tax that would compel every income-generating citizen above a certain threshold to make a contribution towards a fund earmarked for poverty eradication, during the 2016/17 financial year. The news was not received well by members of the public, despite the finance minister placing emphasis on the fact that it would be a temporary measure geared towards equality and wealth redistribution.
The tax will be payable by all individuals in the tax-paying income bracket and all registered companies as a citizens’ response to the national fight against poverty. According to Government's 2015/2016 tax rates, individuals earning more than N.dollars 4 166 per month are expected to pay income tax.
Kavari on Wednesday noted that no major tax increases are expected, and that instead, modest tax proposals should be expected.
He also said due to Government’s resolve to fight poverty, no increase in value added tax (VAT) is anticipated.
“Low income earners are usually hardest hit by VAT increases. Furthermore, it will have an adverse impact on personal consumption especially in this low growth environment.”
Kavari however noted that company taxes, which are the most sensitive to business cycles during a financial year, will most likely be spared, while substantially higher sin tax increases are expected than the normal inflation adjustments, which leaves cigarette smokers and alcohol drinkers paying more for the pleasure.
“We do not expect an austerity budget but we do expect some fiscal consolidation in the light of falling tax revenue receipts and an uncertain outlook.”
Kavari explained that Minister of Finance, Calle Schlettwein will have to guide the economy through the current uncertainty in global markets, falling commodities prices, weak global demand for commodities, the devastating effects of the continued drought, as well as the precarious fiscal position amid the squeeze on Government’s coffers.
He pointed out that lower global oil prices could afford the minister some flexibility in hiking the fuel levy.
Kavari is however of the view that the increase in the fuel levy would be modest due to the weaker currency that has eroded some of the benefits of lower global oil prices.
Given the projected pressure on revenue, Kavari said particular attention will have to be given to the expenditure budget and the nation can expect substantial cuts to expenditure, particularly Government’s wage bill.
He, however, said expenditure will most likely be capped, with savings emanating from the operational budget, adding that measures announced during the Mid-Year Budget Review to control expenditure will be introduced, which will add to additional savings.
“We expect to see cuts to the budget allocations for overtime, furniture and the government’s vehicle fleet. Government’s debt dynamics have deteriorated somewhat since last year’s budget. But while the debt-to-gross domestic product (GDP) ratio remains relatively healthy, it is the increase in debt servicing cost that is of particular concern.”
The investment strategist explained that the increase in yields on Government debt over the past few months has effectively increased Government’s interest rates and coupled with higher inflation expectations and a depreciating Namibia dollar, increasing debt servicing costs do not bode well for the twin deficits.
“While Government should always be cognisant of the threat of a ratings downgrade, the threat is not as emanate as it is in South Africa. All in all, we expect Schlettwein to announce broad measures aimed at boosting revenue collection, and provide an update on the progress of establishing a semi-autonomous revenue service. We also expect the minister to expand on the public-private partnership initiatives.”
He noted that it will take a fine balancing act to find funds for all of Namibia’s pressing needs – one of which is the drought and the adverse effects it has had on a number of sectors.