Limited life span of 'accumulated loss'
Finance minister accommodates youth, contains transfer pricing
It appears that the nationwide furor surrounding the recently lifted tax thresholds, which were backdated to provide substantial tax relief to the average taxpayer in October and November, caused further adjustments to the Namibian tax law to be overlooked. One of the more prominent tax amendments is that accumulated losses may only be applied in a limited manner and over a restricted term.
Government Gazette 8442 of 16 September announced more than just a few amendments to the Income Tax Act 24 of 1981.
Totally overdue seems to be the fact that all references to the South African currency “rand” have finally been changed to “Namibia dollar”.
But more importantly it confirms the announcement made by finance minister Iipumbu Shiimi, when he announced as part of his budget speech earlier in the year that companies would in future be restricted in accumulating losses over many years.
Section 3 of the amendment act refers to the principal taxation act’s subsection 21 and specifies:
“Any balance of assessed loss incurred by the taxpayer in any previous year which has been carried forward from the preceding year of assessment: Provided that the amount of such setoff does not exceed N$1 million or 80 per cent of the amount of taxable income determined, whichever is the greater, before taking into account the provisions of this section and section 36.”
This is essentially a copy of a taxation regulation that has been in place in South Africa for some time, where the government requires the taxpayer to at least pay tax on 20% of his taxable income for the year, while any accumulated tax loss can only be set off against 80% of the taxable income of that same year.
In a case where the taxable income for the year does not exceed N$1 million, the taxpayers is allowed to set off the full accumulated loss up the said million. This new regulation applies under the proviso that liquidated estates cannot carry forward previously accumulated tax losses.
What could have a substantial impact on the corporate world of Namibia is the fact that “no assessed loss shall be carried forward as a deduction for more than five years in respect of any taxpayer or 10 years in respect of entities involved in the mining, petroleum or green hydrogen industry”.
Support to the youth
If the finance minister had promised incentives in favour of youth employment, he has certainly also honoured that commitment.
The amendment act provides for additional tax relief where a “registered internship agreement” is in existence between an employer (approved by a designated authority) and an intern is in place. An “internship allowance” may be deducted each year with the amount being adjusted in proportion to the length of a year for internships that do not cover 12 months.
The amendment act states: “The internship allowance referred to in subsection (2) shall be determined in accordance with the following formula: (A/B) x C – C = Internship allowance, in which formula - (a) “A” represents 50 per cent of the amount represented by “C”; (b) “B” represents the corporate tax rate per cent; and (c) “C” represents the actual cost incurred per annum or N$50 000, whichever is the lesser.”
Upon querying that formula that clearly is faulty, NMH was assured by one of the drafters of the act, Seppo Shigwele, who explained that sub-paragraph a) should have simply read: “a) ‘A’ represents 50 per cent.”
Assuming that an employer (a company) would be entitled to deduct the maximum allowance, a typical example confirmed by Shigwele and his team would be as follows: ((50%/31%) x 50 000) - 50 000 = N$30 645.
Transfer pricing redefined
Another substantial change has been introduced to so-called transfer pricing, which resorts under Section 95A of the principal act under the heading: “Determination of taxable income of certain persons in respect of international transactions.”
The amendment act 2024 redefines the concepts of “connected person” and “control over another person”.
Consequently “interest on all forms of debts, loans, deposits, claims or other rights or obligations” (and similarly described financing tools) have been redefined, which has an impact on the taxation calculation, as “no deduction shall be allowed for the purposes of ascertaining the taxable income of any connected person in respect of any amount of net interest expense for any year of assessment that exceeds 30 per cent of such connected person’s tax EBITDA”.
Totally overdue seems to be the fact that all references to the South African currency “rand” have finally been changed to “Namibia dollar”.
But more importantly it confirms the announcement made by finance minister Iipumbu Shiimi, when he announced as part of his budget speech earlier in the year that companies would in future be restricted in accumulating losses over many years.
Section 3 of the amendment act refers to the principal taxation act’s subsection 21 and specifies:
“Any balance of assessed loss incurred by the taxpayer in any previous year which has been carried forward from the preceding year of assessment: Provided that the amount of such setoff does not exceed N$1 million or 80 per cent of the amount of taxable income determined, whichever is the greater, before taking into account the provisions of this section and section 36.”
This is essentially a copy of a taxation regulation that has been in place in South Africa for some time, where the government requires the taxpayer to at least pay tax on 20% of his taxable income for the year, while any accumulated tax loss can only be set off against 80% of the taxable income of that same year.
In a case where the taxable income for the year does not exceed N$1 million, the taxpayers is allowed to set off the full accumulated loss up the said million. This new regulation applies under the proviso that liquidated estates cannot carry forward previously accumulated tax losses.
What could have a substantial impact on the corporate world of Namibia is the fact that “no assessed loss shall be carried forward as a deduction for more than five years in respect of any taxpayer or 10 years in respect of entities involved in the mining, petroleum or green hydrogen industry”.
Support to the youth
If the finance minister had promised incentives in favour of youth employment, he has certainly also honoured that commitment.
The amendment act provides for additional tax relief where a “registered internship agreement” is in existence between an employer (approved by a designated authority) and an intern is in place. An “internship allowance” may be deducted each year with the amount being adjusted in proportion to the length of a year for internships that do not cover 12 months.
The amendment act states: “The internship allowance referred to in subsection (2) shall be determined in accordance with the following formula: (A/B) x C – C = Internship allowance, in which formula - (a) “A” represents 50 per cent of the amount represented by “C”; (b) “B” represents the corporate tax rate per cent; and (c) “C” represents the actual cost incurred per annum or N$50 000, whichever is the lesser.”
Upon querying that formula that clearly is faulty, NMH was assured by one of the drafters of the act, Seppo Shigwele, who explained that sub-paragraph a) should have simply read: “a) ‘A’ represents 50 per cent.”
Assuming that an employer (a company) would be entitled to deduct the maximum allowance, a typical example confirmed by Shigwele and his team would be as follows: ((50%/31%) x 50 000) - 50 000 = N$30 645.
Transfer pricing redefined
Another substantial change has been introduced to so-called transfer pricing, which resorts under Section 95A of the principal act under the heading: “Determination of taxable income of certain persons in respect of international transactions.”
The amendment act 2024 redefines the concepts of “connected person” and “control over another person”.
Consequently “interest on all forms of debts, loans, deposits, claims or other rights or obligations” (and similarly described financing tools) have been redefined, which has an impact on the taxation calculation, as “no deduction shall be allowed for the purposes of ascertaining the taxable income of any connected person in respect of any amount of net interest expense for any year of assessment that exceeds 30 per cent of such connected person’s tax EBITDA”.
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