Amended Income Tax Act, 2022 commenced
As at 01 January 2023
The amendments amongst others increased the threshold for the tax deductible amount in respect of contributions to a retirement fund and education policy from N$40 000 to N$150 000.
The Income Tax Amendment Act, 2022 came into force on 01 January 2023, the ministry of finance and public enterprises has announced.
The amendments to the Act amongst others include strengthening the taxation of income received on the disposal of ownership of a petroleum licence, or right to mine petroleum in Namibia, including direct or indirect disposal of interest in a company that holds a petroleum licence or petroleum right. The amount received from disposing off a petroleum licence, right to mine petroleum or interest in a company that holds the petroleum licence or right would be deemed to have accrued from the Namibian source irrespective: of whether the transaction was concluded in or outside Namibia; the place where payment of such amount is made; or the place where the funds from which payment is made are held. Therefore, such an amount is taxable in Namibia. The objective is to ensure that any income from the exploitation of natural resources is taxed, whether such income is of revenue or capital nature.
Secondly, the amendments increased the threshold for the tax deductible amount in respect of contributions to a retirement fund (pension fund, retirement annuity fund) and education policy. As from 2022/23 tax year, the aggregate of the amount that may be deducted in respect of these contributions is increased from N$40 000 to N$150 000. The increase in the deductible amount serves as an incentive for citizens to invest adequately for retirement and the education of the Namibian child, the ministry pointed out.
Tax return
In addition, the amendments focus on providing for the filing of a tax return or serving a notice of assessment in an electronic format. A specific provision allowing for furnishing a tax return or serving a notice of assessment through an online platform (i.e. Integrated Tax Administration System), has been introduced. This provision enables and supports government efforts to enhance efficiency and effectiveness in tax administration through automation of processes.
Moreover, it made provision for the transforming tax payments allocation rule. Unlike the previous system, where payments for tax where allocated in order of: tax, penalty and interest, payment will now be allocated in the following order: tax, interest and lastly penalty. This approach to tax payment allocation lessens the tax burden on and improves the ability of taxpayers to settle arrear taxes. The new rule is equally applicable to tax payments pertaining to Value Added Tax.
Lastly, it focused on strengthening thin capitalization rules. A limitation (of 3:1 ratio) in respect of tax deduction for interest incurred on inter-company loan has been introduced. An interest expense for subsidiary on a loan received from a parent would be limited to a deduction not exceeding a ratio of 3:1, if the parent owns at least 25% shares of such subsidiary or entitled to at least 25% of the profit or dividends of such subsidiary. This provision is introduced to prevent companies within Groups from shifting profits from Namibia to tax haven countries, the ministry said.
The amendments to the Act amongst others include strengthening the taxation of income received on the disposal of ownership of a petroleum licence, or right to mine petroleum in Namibia, including direct or indirect disposal of interest in a company that holds a petroleum licence or petroleum right. The amount received from disposing off a petroleum licence, right to mine petroleum or interest in a company that holds the petroleum licence or right would be deemed to have accrued from the Namibian source irrespective: of whether the transaction was concluded in or outside Namibia; the place where payment of such amount is made; or the place where the funds from which payment is made are held. Therefore, such an amount is taxable in Namibia. The objective is to ensure that any income from the exploitation of natural resources is taxed, whether such income is of revenue or capital nature.
Secondly, the amendments increased the threshold for the tax deductible amount in respect of contributions to a retirement fund (pension fund, retirement annuity fund) and education policy. As from 2022/23 tax year, the aggregate of the amount that may be deducted in respect of these contributions is increased from N$40 000 to N$150 000. The increase in the deductible amount serves as an incentive for citizens to invest adequately for retirement and the education of the Namibian child, the ministry pointed out.
Tax return
In addition, the amendments focus on providing for the filing of a tax return or serving a notice of assessment in an electronic format. A specific provision allowing for furnishing a tax return or serving a notice of assessment through an online platform (i.e. Integrated Tax Administration System), has been introduced. This provision enables and supports government efforts to enhance efficiency and effectiveness in tax administration through automation of processes.
Moreover, it made provision for the transforming tax payments allocation rule. Unlike the previous system, where payments for tax where allocated in order of: tax, penalty and interest, payment will now be allocated in the following order: tax, interest and lastly penalty. This approach to tax payment allocation lessens the tax burden on and improves the ability of taxpayers to settle arrear taxes. The new rule is equally applicable to tax payments pertaining to Value Added Tax.
Lastly, it focused on strengthening thin capitalization rules. A limitation (of 3:1 ratio) in respect of tax deduction for interest incurred on inter-company loan has been introduced. An interest expense for subsidiary on a loan received from a parent would be limited to a deduction not exceeding a ratio of 3:1, if the parent owns at least 25% shares of such subsidiary or entitled to at least 25% of the profit or dividends of such subsidiary. This provision is introduced to prevent companies within Groups from shifting profits from Namibia to tax haven countries, the ministry said.
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