Multinationals ‘taking advantage’ of Namibia’s tax system
• Inadequate tax laws in the spotlight
Multinational enterprises have been able to shift their profits out of Namibia due to inadequate tax laws. This according to the Africa Peer Review Mechanism (APRM), which noted that the predominance of foreign investors in the mining sector can lead to loss of public revenue as a result of aggressive tax planning by multinational enterprises.
The findings are contained in the APRM’s country review mission report for Namibia, which said: “Risks of tax malpractice arise from a number of factors, including predominance of multinational enterprises, making taxation of the sector very challenging due to aggressive tax planning".
“Further, as is the case for most developing countries, Namibia lacks adequate laws and human and financial resources to apply international tax norms. As a result, the mining sector is potentially subject to tax-base erosion and profit-shifting, as well as over-reliance on profit-based tax regimes, especially corporate income tax (CIT), which are prone to profit-shifting,” it added.
Namibia’s CIT legislation was found to not be robust enough to deter profit-shifting malpractices, the APRM said.
Complicated
“Although revenue from the mining sector is collected through various instruments, CIT remains the main tax instrument in the mining sector in Namibia. While CIT has the advantage of being part of a generally-applicable tax regime, it has proven to be complicated to administer, especially with the predominant presence of multinational enterprises with enough capacity for profit-shifting malpractices,” it said.
According to the APRM, lack of sector knowledge and expertise makes the entire tax system prone to intentional overstating of costs by companies, and understatement of grade or quality of minerals for tax avoidance purposes.
It recommended that Namibia develop a national strategy to curb potential tax malpractice in the extractive sector through robust legal and law enforcement systems within the mines ministry.
Government was also encouraged to equip specialised units such as the Namibia Revenue Agency (NamRA), the Financial Intelligence Centre and others with the necessary skills and capacity for understanding the mining value chain, and auditing and investigating international tax evasion malpractice, while also participating in relevant regional and global transparency initiatives.
The findings are contained in the APRM’s country review mission report for Namibia, which said: “Risks of tax malpractice arise from a number of factors, including predominance of multinational enterprises, making taxation of the sector very challenging due to aggressive tax planning".
“Further, as is the case for most developing countries, Namibia lacks adequate laws and human and financial resources to apply international tax norms. As a result, the mining sector is potentially subject to tax-base erosion and profit-shifting, as well as over-reliance on profit-based tax regimes, especially corporate income tax (CIT), which are prone to profit-shifting,” it added.
Namibia’s CIT legislation was found to not be robust enough to deter profit-shifting malpractices, the APRM said.
Complicated
“Although revenue from the mining sector is collected through various instruments, CIT remains the main tax instrument in the mining sector in Namibia. While CIT has the advantage of being part of a generally-applicable tax regime, it has proven to be complicated to administer, especially with the predominant presence of multinational enterprises with enough capacity for profit-shifting malpractices,” it said.
According to the APRM, lack of sector knowledge and expertise makes the entire tax system prone to intentional overstating of costs by companies, and understatement of grade or quality of minerals for tax avoidance purposes.
It recommended that Namibia develop a national strategy to curb potential tax malpractice in the extractive sector through robust legal and law enforcement systems within the mines ministry.
Government was also encouraged to equip specialised units such as the Namibia Revenue Agency (NamRA), the Financial Intelligence Centre and others with the necessary skills and capacity for understanding the mining value chain, and auditing and investigating international tax evasion malpractice, while also participating in relevant regional and global transparency initiatives.
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