In 1995, the Government of the Republic of Namibia adopted the Export Processing Zones (EPZ) Act (Act No. 9 of 1995) as a legal framework for promoting export-led industrialisation of the extremely primary sector-driven national economy. EPZ enterprises are exempted from: Corporate income tax; Duties and value-added tax (VAT) on machinery, equipment and raw materials imported into Namibia for manufacturing purposes.
The only taxes payable are the individual income taxes on employees’ income as well as the 10% withholding tax (non-resident shareholders) on declared dividends. In addition, EPZ enterprises are allowed to hold foreign currency accounts at commercial banks in order to repatriate their capital and profts.
The Tsumeb smelter operates as an EPZ enterprise, as defned by Namibia’s EPZ Act, and therefore does not pay corporation tax in Namibia. Legal issues related to tax are increasingly being discussed and different measures to overcome tax injustice are being undertaken globally.
Faced with the pressures of globalised capital movements and loudly voiced threats from corporations that they will relocate unless given concessions on ‘light-touch’ regulation and lower taxes, governments around the world have responded by engaging in tax competition to attract and retain investment capital. Some states with limited economic options have made tax competition a central part of their development strategy. This inevitably undermines the growth prospects of other countries, as investments are attracted away from them, and has stimulated a race to the bottom.
Proponents of tax competition have never answered the crucial question of how far it should be allowed to go before it compromises the functioning of a viable and equitable tax regime. Taken to its logical extreme, unregulated tax competition will inevitably lead to a race to the bottom, meaning that governments will be forced to cut tax rates on corporate profts to zero and subsidise those companies choosing to invest in their countries.
This is already happening in some countries. The implications of this for tax regimes and democratic forms of government around the world are dire. Indeed, this is one of the biggest threats to freedom the world may now face. The problems that capital flight, tax avoidance and tax competition pose for poorer countries have been exacerbated by what appears to have been a failure on the part of multilateral institutions to protect the tax regimes of developing countries when promoting trade liberalisation policies.
Faced with dramatic falls in their tax incomes, governments have responded by raising VAT rates and generally shifting the tax burden onto poorer and middle income households. The process has accelerated since 2008, with disturbing implications for inequality and social stability.
According to the Economic Policy Institute in its book Rethinking Growth Strategies, “If countries are to beneft from globalization, governments must regain the capacity to tax their citizens as well as businesses operating within their borders, and to use the revenues to finance infrastructure, essential public services and necessary wealth redistribution.”
Read more here: Dirty Precious Metals Namibia Report 2016
