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

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 Windhoek, 17 February 2016

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.”

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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.

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.

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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 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.

Initiatives and policies to reduce poverty and inequalities

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 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:

1. 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,

2. improving the social safety nets over time as the first line of defence against poverty
and vulnerability,
3. 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

4. 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 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.

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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.

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.

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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.

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.

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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.

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.

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Thank you for your attention.

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