• “Maintaining pro-growth fiscal consolidation” – An overview of the 2017/2018 Budget
Article:

“Maintaining pro-growth fiscal consolidation” – An overview of the 2017/2018 Budget

09 March 2017

Simon Steyn , Partner |

The annual budget for the 2017/2018 budget was tabled in Parliament yesterday by the Honourable Minister of Finance, Calle Schlettwein.

The following is a brief overview of the notable changes and/or considerations relating to the budget, which we believe will be of interest to our clients.

The Honourable Minister of Finance announced a total expenditure budget allocation of N$71, 67 billion for the 2017/2018 financial year, which highlights an increase since the prior budget allocation of N$4,92 billion (N$66, 75 billion for 2016/2017).

The main focus was to limit expenditure without neglecting social responsibility. Five priority focus areas have been established, namely:

  • Strengthen macroeconomic fundamentals and rebuilding fiscal buffers;
  • Economic growth and sustainable development;
  • Poverty eradication and the improvement of social welfare;
  • Progress towards prosperity; and
  • Improved delivery of timely, reliable and affordable services to the public.

Highlights:

The following is a list of notable highlights (and VAT lowlight) addressed / not addressed in the annual budget overview:

  • The Public Sector wage bill stands at 49% of non-interest public expenditure.
  • 47.7% of the non-interest expenditure is allocated to social expenditure, i.e. health, education, poverty eradication and housing.
  • The abovementioned implies that nearly all infrastructural development is debt financed.
  • N$1.8 billion has been allocated for payment of debts for services rendered to Government in the 2016 / 2017 financial year, which have not been paid. It is not clear whether this amount includes the PSEMAS debts due to medical sector service providers.
  • No mention is made regarding the funding and payment of the massive VAT Input credit debt due to the private sector.
  • N$36.17 billion has been allocated to education – the highest budget allocation. Access to Tertiary Education will be expanded additionally through formula-based funding and increased financial assistance to students; as well as research and development and vocational training. Sadly, fundamental inefficiencies in the system will in our view, not be addressed by throwing more money at the problem.
  • The Old Age Pension was increased by N$100 to N$1,200 per month.
  • Coverage for orphans and Vulnerable Children will be further expanded.
  • The following tax proposals will be undertaken during the budget year:
  1. Implementation of the Tax Arrear Recovery Incentive Programme will continue across all categories of taxes within the announced term. Capacity in Inland Revenue to raise the necessary assessments and consideration of the expected volume of applications by mid – year when the programme terminates, remains a concern to us. We hope that the period will be extended, if the administrative capacity is lacking.
  2. Wealth-based taxation is planned to embody the principle of a Solidarity Wealth Tax, based on taxation of certain categories of assets.
  3. A tax proposal for a Simplified Presumptive Tax on small units will developed and tabled.
  4. In keeping with the SACU Agreement, excise duties on alcohol and tobacco products will increase.
  5. The enabling legislation will be tabled for the dedicated Revenue Agency, which is expected to commence operations on 1st April, 2018. Hopefully, this will increase the efficiency of tax administration and recovery.
  6. A phased roll-out of the new Integrated Tax System will commence during year for the full deployment of the system by 2018. We will welcome a fully functioning and reliable e-filing system as part thereof.
  7. Proposals for curbing base-eroding tax deductions and exemptions on Income Tax and VAT will be proposed through a stakeholder consultation process.
  8. Cheque payments will be phased out with effect 30 June 2017, in line with stated Bank of Namibia policy. Pity the farmers without internet banking.
  • The following Sin Tax Percentage increases are applicable retrospectively, effective 27 February 2017:

Malt beer

12c

Unfortified wine

23c

Fortified wine

26c

Sparkling wine

70c

Ciders & alcoholic fruit beverages

12c

Spirits

443c

Cigarettes

106c

Cigarette tobacco

119c

Pipe tobacco

40c

Cigars

658c

  • There were no further proposals to changes in tax rates for existing direct and indirect taxes.

The Budgetary Provisions for the 2017/2018 financial year are as follows:

Total Expenditure Budget Allocation: N$ 71.67 billion             

Total Revenue Estimation: N$ 56.43 billion                 

Budgetary Provisions for the 2017/2018 Financial Year per Sector

 

Budget allocation
(N$ billion)

Economic and Infrastructural Development

              9.09

Targeted Subsidies - Public Enterprises

-

Social Sector (Total):

            27.44

Education

15.1

Health and Social Services

6.51 

Ministry of Poverty Eradication and Social Welfare

5.83

Public Safety and Order

              12.45

Administrative

                8.57

Contingency Provision

                0.20

Unforeseen Emergencies

                0.28

Projected deficit: 3.6%