By Stefan van Zijl
Navigating the Namibian tax regime
Ongoing developments from a tax administration and policy perspective and the shift to a more aggressive stance of NamRA have elevated tax law in Namibia to a highly specialised area of practice.
The tax team at Cronje Inc is comprised of highly skilled individuals with experience in consulting with various clients operating in the commercial sector and regularly provides comprehensive, up-to-date tax advice to corporates and high net worth individuals.
The team of tax lawyers has a well-established track record in advice and dispute resolution relating to income tax and value-added tax. Our services range from consulting on the tax aspects of clients’ commercial dealings to interacting with the tax authorities on their behalf, whether in seeking rulings or in resolving disputes. Our tax lawyers are skilled in handling objections to assessments, settlement negotiations, and appeals in the Tax Tribunal and the High Court.
In this article we will focus on the on interest charged on delayed payments of refunds.
Introduction
VAT is, as its name signifies, a tax on added value.[1] It is imposed at each step along the chain of manufacture and distribution of goods or services that are supplied in Namibia in the course of business; and it is calculated on the value at the time of each such step.[2] In Namibia, the VAT system is instituted by section 6 of the VAT Act.
The tax that is payable by the taxpayer is called output tax and the tax that was payable on the supply to the taxpayer upon acquisition of good or services is called input tax.[3]
An important point to note is that VAT, quite unlike income tax, does not give rise to a liability only once an assessment has been made. VAT is a multistage tax; it arises continuously.[4]
Refunds
If, for any tax period, a taxpayer files a return indicating the total amount deductible by a taxpayer under section 18(1) of the VAT Act for a tax period, exceeds the taxpayer’s output tax for that period, the return shall constitute a claim for a refund.[5] Put differently, where the aggregate amount of input tax exceeds the output tax accounted for, the excess is refundable to the taxpayer by NamRA.
Where the Commissioner is satisfied that a refund is due to any such taxpayer, the credit balance arising on the tax account of such taxpayer, shall be refunded to the taxpayer. The refund shall be made not later than the end of the second calendar month following the date the credit balance arose on the relevant tax account.
It’s important to pause at this juncture to briefly discuss the provisions relating to “assessments” in the VAT Act.
The Commissioner may make an assessment of the amount of tax payable by a taxpayer where:
- any person fails to furnish any return as required by section 24 of the VAT Act or fails to furnish any import declaration as required by section 14(1) or (2) of the VAT Act;[6] or
- the Commissioner has reason to believe that any person has become liable for the payment of an amount of tax, but has not paid such an amount; or
- the Commissioner is not satisfied with any return or import declaration which a person is required to furnish in terms of the applicable section referred to in section 25(1)(a) of the VAT Act.
An assessment in terms of section 25(1)(b) of the VAT Act may:[9]:
- in any other case, be made within five years after the date the return or import declaration was submitted.
It should be noted that section 25 of the VAT Act does not signify that the Commissioner has carte blanche to asses at any time and as he pleases. The Commissioner himself may assess only if the circumstances envisaged in section 25(1) read with section 25(3) or (4) of the VAT Act find application.
What the Commissioner is not permitted to do is, is to simply disregard the provisions of section 38(2)(b) of the VAT Act, withhold payment of any credit balance arising on the relevant tax account for a tax period beyond the two-month period provided for in subsection 38(2)(b) of the VAT Act with the intention that he will later assess “at any time” if demand for payment is made. Such conduct is plainly not authorised and runs contrary to the entire disciplined scheme envisaged by the VAT Act. This is so particularly because the Commissioner’s remedy in the circumstances envisaged in section 25(1) of the VAT Act lies in the power to raise additional tax, penalties and/or interest, if he later discovers any of the circumstances envisaged in section 25(1) of the VAT Act apply, provided he can bring himself within the ambit of section 25(1) of the VAT Act.
When does interest accrue?
Where the Commissioner is satisfied that a refund is due to any taxpayer, the credit balance arising on the tax account of such taxpayer, shall be refunded to the taxpayer. The refund shall be made not later than the end of the second calendar month following the date the credit balance arose on the relevant tax account.
Until the Commissioners decision that he is satisfied that a refund is due, is set aside, the Commissioner is compelled by law to act in the manner provided for in subsections 38(2)(a) of the VAT Act and/or to act in terms of section 38(2)(b) of the VAT Act by refunding the credit balance on the relevant tax account, not later than the end of the second calendar month following the date on which the credit balance arose and if he fails to do so, he is compelled to pay interest as provided for in section 39 of the VAT Act.
Thus, any period that the Commissioner takes to satisfy himself that a credit balance is due which exceeds the end of the second calendar month following the date that the relevant returns were submitted, is subject to interest payable to the taxpayer at a rate of eleven percent (11%) per annum.
Conclusion
VAT is not intended to be a cost to business. It merely has a cash flow impact where goods or services are acquired by the registered person / taxpayer for taxable activities as the registered person is entitled to claim input VAT back from NamRA.
VAT refund payments are needed to stimulate business activity, but where VAT refunds are continuously locked up in “audit activities” the much-needed cash flow to business is delayed, sometimes for years on end. It is not surprising that taxpayer frustration is mounting where VAT refund claims are constantly met with suspicion and intensely scrutinised at length.
The VAT Act recognises the need for timeous refunds by compelling NamRA to pay interest in the event of a delay in the repayment of VAT refunds and it is thus crucial for healthy tax system for taxpayers to exercise their rights in this regard.
It is imperative that taxpayers act proactively when deciding on what to do next. Furthermore, as this brief merely provides an overview, it is advisable that all affected parties seek professional legal advice to determine whether which course of action to take.
Disclaimer
Kindly note that this note is not intended to be legal advice. The note is distributed for information purposes only and Cronjé Inc or its employees will not be liable for any direct or indirect loss that may be suffered as a result of reliance on the content of this note. The note is confined to matters of Namibian law, as at the date hereof. In the event that the content hereof is relevant to any reader, we advise that the reader is to approach their attorney for legal advice.
[1] Metcash Trading Limited v Commissioner for the South African Revenue Service and Another 2001 (1) BCLR 1 (CC) par 12.
[2] Metcash Trading Limited v Commissioner for the South African Revenue Service and Another 2001 (1) BCLR 1 (CC) par 12.
[3] Metcash Trading Limited v Commissioner for the South African Revenue Service and Another 2001 (1) BCLR 1 (CC) par 14.
[4] Metcash Trading Limited v Commissioner for the South African Revenue Service and Another 2001 (1) BCLR 1 (CC) par 16.
[5] Section 38(1) of the VAT Act.
[6] Section 25(1)(a) of the VAT Act.
[7] Section 25(1)(c) of the VAT Act.
[8] Section 25(1)(b) of the VAT Act.
[9] Section 25(4) of the VAT Act.
