FOCUS ON VALUE ADDED TAX (VAT)

Government revenue in all countries is generated from a number of sources using various mechanisms. In Namibia, about 80% of government revenue is generated through taxation. The major tax sources in Namibia are taxes on international trade (mainly from SACU revenue), taxes on income and profits and domestic taxes on goods and services (sales tax), with contributions of 10.6%, 11.9% and 9.3% respectively, as percentages of GDP at market prices in 1998/99. Each of these sources has its own shortcomings. SACU revenue, for example, is unreliable in the long term, given the ongoing international changes aimed at trade liberalisation. Domestic taxes on goods and services, particularly excise tax on domestic goods and services, are regressive. A tax is regressive when the rate is levied regardless of income; for example, levying a higher tax rate on goods which are consumed mainly by the poor. Tax reforms are necessary in Namibia for reasons concerned with characteristics common to many developing countries: insufficient resources and weak administration, lack of qualified manpower, insufficient availability of tax tools and their restricted coverage, a legal system ill-equipped to enforce penalties in courts, absence of incentives for collecting taxes and tax evasion. In order to enhance the level of tax compliance by existing and potential taxpayers, and to ensure greater efficiency, fairness and equal treatment of all taxpayers, the Ministry of Finance in Namibia has since the financial year 1997/98 embarked upon a main tax administration modernisation project. This project has involved the redesigning of the institutional set-up and staff training of the Inland Revenue department, revising work procedures and operations, staff training, updating existing legislation, and designing and installing new computerised tax administration applications. During the same financial year, it was further announced that investigation into the feasibility of a value added tax (VAT) was to commence during the above-mentioned financial year, with the objective of introducing VAT between 1998 and the year 2000. It is expected that VAT will be implemented during the first week of October this year