Tax increases pension, retirement and Edu policy deduction limit – InsuranceNewsNet

ALTHOUGH there are only two months left before the end of the 2023 tax year, individual taxpayers can now deduct up to N$150,000 of pension and superannuation fund contributions from their pre-application income. of the tax axis.

This is part of changes to the Income Tax Act, which took effect on January 1, 2023.

The amendment to increase significant deductions for pensions, retirement, education policy and key man insurance policy by N$40,000 has been on the cards since the days of the former finance minister Schlettweinstraat.

However, it took about 11 years for there to be an update on the deductible amount.

In 2019, when an amendment to the rule was announced, Schlettwein said an update was needed to improve local saving and investing.

The amendments also include an insertion that the Commissioner may now issue assessments electronically. not just by mail.

Other sections of the Income Tax Act which have been amended include the note that dealers in petroleum licenses, either by sale, gift, expropriation, assignment, concession or other disposition, or by transfer of ownership of a petroleum license, either by the right to exploit petroleum in Namibia whether directly or indirectly, or through the sale of shares of a company holding such a licence, shall be deemed to be of Namibian source and, therefore, taxable in Namibia.

For a long time Namibians cried over the sale of oil licenses overseas without the country receiving the necessary tax revenue, and now it would force the concessionaires of those licenses to pay taxes on them every time a sale or agreement occurs around them.

Other key amendments provide that whenever a payment is made by a taxpayer for tax, interest or penalty, it will first be applied against tax payable, interest and then penalties.

LEGISLATIVE THIN CAP

Many Namibian companies of foreign origin are financed by debt.

According to Bank of Namibia According to the 2021 Annual Report, external debt at the end of 2021 stood at N$129 billion, of which nearly half (N$61 billion) was from direct investment enterprises through inter-company lending .

Sometimes companies raise the high interest rates on these loans, eliminating all profits through the deductibility of the interest expense for tax purposes. As a result, they pay less tax.

In 2021, debt service on outstanding external debt of N$61 billion for intercompany loans was recorded at N$10.8 billion.

To counter abuses by companies that over-deduct interest expense, a practice note was passed through the central bank that interest expense deductions would only be permitted if outstanding debt and the equity of such a company is in a ratio of 1:3.

The new tax changes now require that where a resident company in which any non-resident company or person holds an interest of at least 25% of the financial assistance recipient’s dividends, profits or capital exceeds the ratio of 3 : 1 against the fixed capital of the resident company at any time during a tax year, a deduction will be disallowed for any interest paid and any realized foreign exchange loss incurred during that period on the part of the financial assistance that exceeds the ratio of three to one.

However, this is not definitive since the amendments allow taxpayers to apply to the Minister or to the Namibia Revenue Agency Commissioner to take into account the circumstances and risks associated with the taxpayer’s business, and may be granted the right to deduct the interest expense or foreign exchange loss realized.

These amendments were signed into law by the President on December 29, 2022and are published under Official newspaper number 7992.

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