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Chinese not 'tax exempt'No till slips does not mean non-compliance, says commissioner Inland Revenue encourages consumers to alert it to suspected tax evasion.
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Contrary to pervasive perceptions, Chinese businesses operating in Namibia are not tax exempt and all persons – natural or juristic – doing business here and regardless of nationality are obliged to account for tax obligations in respect to all taxes.
However, Inland Revenue commissioner Justice Mwafongwe acknowledged that the Ministry of Finance does not have an idea what the rate of tax compliance among Chinese businesses is.
“The problem in Namibia is that we have not conducted such research. We have done an investigation, but not research. One can do research on what is called a tax gap and do an analysis. But we have investigated taxpayers, including Chinese businesses, and some have been arrested for tax evasion,” Mwafongwe said.
A tax gap is the difference between total amounts of taxes owed to the government against the amount actually received. This is usually caused when taxpayers overstate deductions and understate their income to pay fewer taxes. Late-paying taxpayers also cause a tax gap.
Mwafongwe stressed that foreigners in general are not exempted from paying tax here.
“Our tax system is not based on nationality but on the source of income, meaning that all income received, or deemed to be, from a Namibian source is taxed in Namibia. Similarly, any tax exemption is based on income, not the person who received the income. This means that it is the specific income that is exempted from taxation and not the recipient who receives such income,” said Mwafongwe.
There are, however, foreigners who claim tax exemption in accordance with the Income Tax Act of 1981.
Under this law an exemption on tax is applicable to foreigners with diplomatic status only. It makes provision for tax relief allowable to certain diplomats, diplomatic and consular missions and public international organisations, and in respect of certain technical assistance agreements.
Diplomats are authorised to claim a refund of tax paid on condition that they provide all tax invoices in support of each amount of tax claimed.
There are, however, no tax refunds on consumables by foreign nationals. This means that foreigners cannot claim tax refunds when buying food or drinks.
Perceptions
Ordinary Namibians have stated in SMSes and on social media platforms that Chinese businesses seem to be either tax exempt or receive special treatment from the Namibian tax regime.
This is surmised on the premise that there is a special bilateral arrangement between the two countries or ruling parties that the Namibian people are uninformed about.
There have been Namibian suppliers who noted that Chinese construction companies asked them not to bill them for value-added tax (VAT) because they [the Chinese businesses] “do not pay VAT”.
Namibian consumers at Chinese retailers have similarly on numerous occasions wondered if Chinese shops are evading tax or are tax exempt because they do not provide till slips on transactions. It is thus not clear if Chinese shops pay VAT.
Mwafongwe reiterated that there are no special arrangements between the governments but said that it is not a requirement that consumers be issued with tax invoices if they do not so request.
“The [Income Tax] Act does not compel the supplier to issue one [tax invoice] but this does not mean that such supplier is not VAT compliant. Of course, the supplier becomes VAT non-compliant if he or she refuses to issue a tax invoice upon request by the purchaser,” Mwafongwe said.
He said the Inland Revenue department is aware that there are businesses that “sometimes refuse to issue invoices to their clients for reasons only known to them”.
This, he said, could be because they do not charge VAT or they are not registered for VAT or they are non-compliant with tax obligations.
Huh?
A short visit to China Town on Newcastle Street in Windhoek to test the waters confirmed the complaints that the shops there in general do not issue till slips for purchases.
Most shopkeepers claimed not to understand questions put to them regarding VAT registration, VAT compliance or the absence of till slips.
Many would not be questioned, merely responding: “Boss not here; boss in China.”
Others said they do indeed provide till slips, which on closer look are tax invoices written out in undecipherable Chinese with no indication of a VAT registration number.
Of the 15 shopkeepers approached, only one, who merely identified himself as Alex, at a fabric and textile shop, said the shop is in fact VAT registered. Alex, however, would not present a till slip produced for customers.
Not only the chinese, says mwafongwe
Companies registering a profit of more than N$500 000 per year are required to register for VAT.
An observer pointed out that if Chinese shops do not register for VAT it would mean that they either do not clock up more than N$500 000 in profits per year or obviously that they do not fully declare their profits.
This observer commented that it would be unlikely for Chinese businesses to travel around the world remain in businesses which do not make profit beyond the N$500 000 threshold.
Mwafongwe countered that the issue of not issuing tax invoices or receipts is not limited to Chinese businesses.
“This is a serious concern to us as it undermines revenue reporting. We are thus appealing to the general public to demand valid tax invoices after paying for goods at any shop irrespective of the owner. Those that do not provide invoices but charge VAT should know that such action is contrary to tax laws and further actions will be taken against them should they be found. Members of the public are urged to report any business that refuses to issue a tax invoice to any nearest tax office,” Mwafongwe said.
CATHERINE SASMAN
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