Namibia: Tax changes tabled in Parliament

The Minister of Finance recently read the 2010 Income Tax Bills in Parliament. Notable measures in the bill include a reduction in the corporate tax rate for non-mining companies, the disallowance of a deduction for rehabilitation expenses and changes to the withholding tax rules on interest. The Amendment Act still needs to be gazetted before it will become law.


Corporate tax rate

The corporate tax rate is proposed to be reduced from 35% to 34% for companies other than mining companies, with effect for tax years commencing on or after 1 January 2009. The current 35% rate has been in place since January 1999.

The retroactive change to the corporate tax rate may have accounting implications, although whether the reduced rate should be used in preparing annual financial statements, tax and deferred tax computations for purposes of annual financial statements for reporting periods that have already closed will depend on a number of factors. Some companies have adopted accounting policies for tax and deferred taxation that specify that tax rates that have been substantively enacted by the year end are to be used in the calculation of the tax and deferred tax charge for the purposes of the annual financial statements. Furthermore, paragraphs 21 and 22(h) of IAS 10: Events after the Reporting Period seem to indicate that a change in the tax rates or laws enacted or announced after the reporting period that have a significant effect on current and deferred tax assets and liabilities is an example of a non-adjusting event after the reporting period. Appropriate disclosure of this event and an estimate of the financial impact on the entity would need to be disclosed in the annual financial statements.


Rehabilitation expense

Taxpayers conducting mining operations are currently allowed to deduct rehabilitation expense actually incurred or any rehabilitation provision approved by Inland Revenue. This deduction will be abolished under the 2010 Income Tax Amendment Act and, once the Act is gazetted, the provision will be removed from the Act for tax years commencing on or after 1 January 2010. As a result, no specific deduction will be available for rehabilitation in the future. This will also have an impact on companies that claimed provisions in 2009, as the 2010 tax computation will only include an add back of the 2009 closing balance previously claimed. Mining companies are also required to include any rehabilitation provision that was previously deducted for tax but not used in taxable income in the year mining operations ceased. This provision will still apply in respect of provisions made before financial years commencing on or after 1 January 2010.

Interest

The following changes, which would apply retroactively as from 1 March 2009, would be made to the rules governing withholding tax on interest:

- No tax will be withheld on interest on negotiable instruments;
- Namibian banking institutions and unit trust schemes will be required to issue certificates to all persons where the tax withheld was in excess of NAD 100 for the relevant tax year; and
- Taxpayers that are exempt from income tax under section 16 of the Income Tax Act (exemption section) will also be exempt from withholding tax on interest.