REPUBLIC OF NAMIBIA

STATEMENT

BY

HONOURABLE CALLE SCHLETTWEIN (MP)

MINISTER OF FINANCE

Solidarity Tax in Namibia: Is it a conducive Tool for Poverty Alleviation

NICE Restaurant

Windhoek, 17 February 2016

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 Director of Ceremonies;
Mr Heiner Naumann, Resident Representative of Friedrich-Ebert
Stiftung,
Mr Paulus Hango, President of Trade Union Congress of Namibia
Distinguished Invited Guests;
Members of the Media;
Ladies and Gentlemen

1. I would like to express my sincere gratitude to Friedrich Ebert

Stiftung for inviting me to this public discourse and address you on
the proposed Solidarity Tax as one of the means to contribute to
the fight against poverty in Namibia.

2. No one likes to pay tax___ that is a fact that we have to live with.
In specific regard to the proposed Solidarity Tax, the most
fundamental matter of concern does not appear to be so much on
the principle, but more on the design features and use of the
proceeds. My statement will focus on some of these elements. But
suffice to say also that the national consultations, including our
discussions here today, will contribute to this understanding.

3. Poverty reduction and its eventual eradication remain the

overarching policy objective for the Namibian Government. Vision
2030, which we all aspire to achieve, requires that “poverty is
reduced to the minimum, the existing pattern of income-
distribution is equitable and disparity is at the minimum.”

4. To give effect to this national goal, the new Administration has

elevated this national objective by declaring an all-out war on
poverty. This implies that we need to have optimal resources to
fund the targeted interventions to, more than ever before, push
back the frontiers of poverty in an accelerated manner.
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5. To this effect, the Government has instituted and scaled-up social
safety net systems as the first line of defense against poverty and
vulnerability. Indeed, the incidence of poverty is cross-cutting and
there is no silver bullet to eliminate its manifestation. This requires
country-specific bold decisions. And it requires a mix of well-
considered and targeted policy tools to realize a meaningful
reduction and eventual elimination of the scourge of poverty.

6. In the case of Namibia, the phenomenon of poverty should be well

understood in its historical context. We emerged from the historical
background of extreme social and income inequalities whose
redress requires bold decisions, adequacy of tools and persistent
implementation. As an Upper Middle-Income Country, with no
access to concessional lending, we should be able to devise and
implement domestic policies to address our socio-economic
development problems.

7. In the context of this tax proposal, “solidarity” means displaying

empathy towards the poor in a meaningful manner. We conceive
of a Solidarity Tax to imply that those who have reasonable means
of income should contribute to the fight against poverty and the
welfare of the poor. The end objective is to lift the poor out of
poverty over time. The level of the contribution should be least
distortionary and it should strike a balance between the ability and
the willingness to pay.

8. In terms of income inequality, the Gini coefficient stood at 0.70 in

1993/94, which at that point in time, rendered Namibia as one of

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 the most unequal societies in the World. We have been able to
make a meaningful dent on poverty and inequality since than,
thanks to an assortment of targeted policies and the capacity to
grow the economy.

9. The 2009/10 Namibia Household Income and Expenditure Survey

brought out that the Gini Coefficient ratio has declined to 0.58 by
2009/10. This is about 17 percent reduction rate over the 16-year
period or about one percentage point annually. We look forward to
the release of the 2014/15 Income and Expenditure Survey results.
Nonetheless, at this pace of progress, more targeted and scaled-
up measures are needed if high levels of inequities are to be
achieved during our lifetime.

10. Regarding the incidence of poverty, we have witnessed a

similar trend. The number of households in relative poverty fell
from 38 percent in 1993/94 to about 20 percent in 2009/10, while
households in extreme poverty declined over the same period.

11. From these statistics, we can confidently say that existing

policies and interventions have been instrumental to bring about a
meaningful progress in pushing back the frontiers of poverty and
closing glaring inequality gaps.

12. Global experience suggests that the closer one gets to the
goalpost of poverty eradication, at least in a qualitative sense, the
more intricate it becomes to realize accelerated outcomes.
Hence, more nimble and well-targeted policies are needed to
diminish the remaining deep pockets of poverty.

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 Initiatives and policies to reduce poverty and inequalities
13. Director of Ceremonies, the war on poverty and the drive towards
prosperity for all require that we reinforce initiatives to accelerate
outcomes in these two areas.

14. The Ministry of Poverty Eradication and Social Welfare is

established and since then, the Ministry has been hard at work to
design comprehensive and measurable strategies.

15. As noted, a mix of policy tools is needed to place poverty on a

faster, declining path. In this respect, Government is pursuing an
assortment of policies, which include the following:

 making the national budget increasingly more pro-poor and

pro-growth by allocating increasing resources to
interventions that draw the poor into mainstream economic
activities and cushioning the vulnerable members of our
population,

 improving the social safety nets over time as the first line of
defence against poverty and vulnerability,
 supporting the creation of decent jobs and self-employment
opportunities in the private sector through multi-pronged
interventions, ranging from SME and private sector support
programmes, infrastructure development and increased
access to finance, and

 reviewing the tax policy to make it more growth-friendly and

enhance its redistributive property.

16. This latter objective area is of particular significance to fiscal

policy. In considering Namibia’s special circumstances, tax policy

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 should not only be seen to contribute to the raising of public
revenue and supporting national competitiveness. It should also
increasingly contribute to the socio-economic objectives of
reducing income inequalities.

17. Our tax base remains narrow and the tax system is skewed. The
tax policy reforms in relation to national objectives should, among
others, aim to broaden the tax base and address the skewness of
the system through deepening its progressivity and redistributive
property to erode widespread inequalities. This could be achieved
by spreading the tax burden fairly in line with the ability to pay.
The growth in disposable income that we have consistently
witnessed over time allows us to display the empathy to the poor
through this measure.

18. Government is currently seized with the formulation of a

“Harambee Prosperity Plan” which is a high-impact intervention
plan to accelerate the realization of outcomes in the critical pillars
of social development, effective governance and service delivery,
economic development and infrastructure development to be
aligned and prioritized over the NDP5 period.

Objective and design features of the Solidarity Tax

19. The proposed Solidarity Tax is an added element in the toolkit to

reinforce the national response to the accelerated reduction and
eradication of poverty. It is an added dimension of tax policy
response to the social development and transformation agenda.

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20. It has a double-edge purpose of enhancing the progressivity of
the tax system to optimize its impact on inequalities, while at the
same time raising targeted revenue to fund specific interventions
for drawing the poor out of poverty.

21. As I have stated during the Mid-Year Budget Review when I

proposed this tax proposal last year, the Solidarity Tax will be
introduced as a progressive withholding tax on income at a
graduated scale for individuals and juristic persons (Closed
Corporations, partnerships, trusts and companies).

22. It is proposed that the proceeds will accrue to a dedicated Fund

under the Ministry of Finance. The Fund will attract annual audit
and Parliamentary approval and accountability. The Office of the
Prime Minister, the Ministry of Finance, the National Planning
Commission and the Ministry of Poverty Eradication and Social
Welfare will coordinate the activities and programmes of the
Fund.

23. The Tax will be based mainly on income of individuals and juristic
persons for which thresholds will be determined.

24. The criteria for fund allocation will be developed for targeted
activities on poverty reduction and income generation. It shall
have a sunset clause that, once the Gini Coefficient reaches
about 0.4 percent, the Fund would have reached its objective. In
this context, the proposed solidarity tax actualizes our declared
war on poverty from the fiscal front.

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 Relevance to National Objectives and Safeguards

25. There has been different interpretations and questions regarding

the Solidarity Tax as a conducive tool for poverty alleviation. One
of the disparate interpretation and overstatement is the concern
that the proceeds of the tax will fund operational expenses of
Government.

26. To the contrary, this will be a targeted tax accruing to a designate

Fund with defined oversight mechanism, Fund drawdown criteria
and regular audit provision.

27. It is an integral part of tax policy, with in-built progressivity

elements to provide added impetus to the efficacy of tax policy in
its contribution to the reduction of income inequalities. These
attributes confer greater relevance to the Solidarity Tax proposal
as a relevant tool to contribute to the fight against poverty and
inequality.

28. It is not a sole tool, but an added dimension to the toolkit.

Conclusion,
Director of ceremonies,
29. To conclude, suffice to concede that the policies and interventions
that we have been pursuing over the years have yielded
commendable results. But the process has not been as faster as
desired. Momentum and better-designed and targeted
interventions with transparent and monitoring frameworks are
needed to accelerate progress and optimize outcomes.
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30. The proposed Solidarity Tax is one such intervention. Other
economy-wide interventions relate to sustained inclusive
economic growth, creation of jobs and self-employment
opportunities, access to finance and investment in basic enables.

31. With these remarks, let me thank you once again for the platform
and I will be glad to hear your contribution to this important
national undertaking.

Thank you for your attention.

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