Namibia, Republic of

Application of freight tax - Section 34 of the Income Tax Act

A notice has been issued by the Namibian Revenue Agency (NamRA) to declare and pay freight tax before 1 December 2023.  Note that this is not a new tax but has rather never actively been enforced by NamRA. 

Freight tax is applicable to non-resident owners or charteres not registered for tax in Namibia.  It is aimed at revenues derived from the embarkation of passengers and loading of livestock, mail, and goods within the Namibian territory. The tax payable is 10% of the deemed taxable income multiplied by the corporate tax rate (currently 32%).  

The clearance of any vessel or aircraft can be delayed until complete payment of this tax can be confirmed by the NamRA officials. Entities that have earned income from freight services are encouraged to register, accurately declare their earnings, and ensure tax payment is done by 1 December 2023.

2023/24 Annual Budget Speech

During the 2023/24 Annual Budget Speech, the Minister of Finance communicated that the corporate tax rate for non-mining companies will be reduced by 2% over the next two years. It will reduce to 31% effective on 1 April 2024 and then to 30% on 1 April 2025.

The Minister also confirmed that the tax amnesty programme will be extended for the final time, where all interest and penalties will be written off if the outstanding capital is fully settled by 31 October 2024.

Recent tax amendments

The following tax amendments were effected on 30 December 2022:

Contributions to pension, provident, and retirement annuity funds and educational policies

Section 17(2), providing for a tax deduction on the collective contribution to any pension, provident, and retirement annuity funds and educational policies, is increased from 40,000 to 150,000 Namibian dollars (NAD) per year of assessment. The increased deduction will be effective from 1 March 2022.

Thin capitalisation

The generally applied 3:1 debt-to-equity ratio is now added to Section 95A, whereby the interest deductions and any realised currency exchange losses will be disallowed if the 3:1 ratio is exceeded.

NamRA may be approached for approval to exceed the above threshold, taking into account the circumstances and risks associated with the business of the taxpayer.

Deemed source provisions

Section 15(9) is amended to include paragraph (q) of the definition of ’gross income‘. Thus, the Act now deems the income received from the sale of both mineral and petroleum licences or rights (directly or indirectly) as Namibian source.

Keyman policies

Company contributions towards keyman policies are no longer to be taxed as fringe benefits in the hands of the employee/director in order for the company to enjoy the deduction for tax purposes. The increase in the tax deductibility of the contributions made in terms of the amended Section 17(2) should also be considered. 

Administrative provisions

• Section 56 of the Act is amended to make provision for electronic filing of tax returns. 
• Section 67 of the Act is amended to provide for assessments to be issued in electronic format. 
• Section 81 of the Act is amended to provide for the allocation of payments first to the outstanding tax, then to interest (previously penalties), and then to penalties (previously interest).

Phase out of certain preferential treatments and exemptions

On 31 December 2020, the commencement of the Income Tax Amendment Act, 2020 was published in the Government Gazette (No. 7431), which deals with the repealing of Section 5A of the Income Tax Act No. 24 of 1981. This means that certain existing preferential treatments granted in respect of registered manufacturers will be phased out. It is important to note that this will apply to all taxpayers (not only registered manufacturers) that export manufactured goods and who were previously allowed to claim an export sale allowance.

The special tax incentives granted to registered manufacturers in terms of Section 17A (remuneration and training allowance), 17B (export marketing allowance), and 17D (land-based transportation allowance) prior to 31 December 2021 will continue to apply up to the end of five years after the commencement of the Income Tax Amendment Act. Taxpayers who benefit from the export allowance in terms of Section 17C will have a grace period of five years before their incentive lapses.

It also includes the insertion of Section 101A (repeal of certain provisions of Export Processing Zone Act, 1995), which includes the phasing out of tax exemptions pertaining to certain traders.