19 März 2021 | Wirtschaft
Battered business hits Receiver
New budget documents show the damage caused by the recession and the impact of Covid-19, as well as Namibia’s vulnerability when it comes to Sacu revenue.
2021/22 will be the first year where debt will be the single largest source of funding for Namibia’s budget. – Cirrus Securities
Finance minister Iipumbu Shiimi’s 2021/22 budget documents show individuals paid an estimated N$12.7 billion in income tax in 2020/21, a drop of nearly N$1.46 billion or 10.3% compared to 2019/20. Non-mining companies contributed nearly N$4.99 million to state coffers, about N$940 million or 15.9% less than in 2019/20.
Value-added tax (VAT) of nearly N$8.1 million was collected, about N$3.4 billion or nearly 30% down from 2019/20.
A significant increase in mining companies’ tax and revenue from the Southern African Customs Union (Sacu) dampened the impact of the pandemic and the recession on state coffers. Total tax revenue for 2020/21 is estimated at around N$52.4 billion, a decrease of some N$2.4 billion or 4.4% compared to the previous fiscal year.
Government expects tax on individual income and company profits to increase by more than N$1 billion to N$21.98 billion in 2021/22. Further recovery to N$23.1 billion in 2022/23 and nearly N$24.6 billion in 2023/24 is anticipated.
The increase in 2021/22 will be driven by personal income tax as the contribution from non-mining companies is expected to be about N$4.87 billion – around N$116 million or 2.3% less than in 2020/21.
Both Simonis Storm (SS) and Cirrus Securities believe Shiimi’s forecasts are optimistic.
SS, in its budget analysis, said they was “sceptical” about the projections “as we expect the economic hardship to filter to corporates in the form of retrenchments and salary freezes”.
Cirrus’ analysis points out that “the fallout of the pandemic and regulatory response severely impacted the private sector, which was already vulnerable given the macroeconomic headwinds of the preceding years”.
The analysts refer to surveys conducted by the Namibia Statistics Agency (NSA), in which nearly a third of respondents reported a 91% to 100% decline in revenue between late July and mid-August, well after the worst of lockdown restrictions were lifted for most of the country.
“The result is that many companies would have had to reduce staff costs, either through wage reductions or retrenchments,” Cirrus said.
They added: “Increased lay-offs will result in better personal income tax collections – coming as a once-off benefit to the fiscus. However, the difficult operating environment and onerous labour legislation will make companies extremely cautious to start hiring again – meaning the rebound in taxable incomes will likely be quite slow. Slower-than-expected recoveries for other sectors, such as tourism, will also result in slower wage recoveries.”
Shiimi in his budget speech mentioned various tax policy and administration reforms to be implemented in 2022/23. These include the introduction of a 10%-withholding tax on dividends paid to Namibians, as well as 15% VAT on management fees for listed asset managers.
The proposed tax reforms will do little to benefit the fiscus, according to Cirrus.
Total revenue for 2020/21 is estimated at N$55.5 billion, about 5% less than the previous budget year. Over the MTEF, Shiimi projected total revenue as follows: N$52.1 billion (2021/22), N$52.5 billion (2022/23) and N$57.1 billion (2023/24).
According to Cirrus, these forecasts have been revised downwards by N$14 billion in total over the MTEF.
“This indicates that the ministry of finance expects revenue to remain flat for two years, before slowly recovering back to near FY2019/20 levels at the end of the forecast period. The much lower revenue forecasts, in conjunction with sticky expenditure, are resulting in alarmingly larger budget deficits,” Cirrus said.
Revenue as a share of gross domestic product (GDP) will fall to 28.2% this year, the lowest since 2010/11, according to the analysts. “The stagnation of revenue next year will see this ratio drop to 26.9% in FY2022/23, the lowest since 2004/05,” they added.
Sacu income is projected to tumble from an estimated N$22.3 billion in 2021/21 to N$14.75 billion in 2021/22 and about N$12.3 billion in 2022/23, before recovering to N$14.2 billion in 2023/24.
The decline in Sacu revenue and “stubborn” expenditure levels mean that 2021/22 will be the first year where debt will be the single largest source of funding for Namibia’s budget, Cirrus said. This is forecast to be the case in 2022/23 as well.
Sacu receipts represented 40.3% of Namibia’s total revenue in 2020/21. The decline will see it contribute just 28.3% to revenue this year, and falling to just 23.5% of revenue in 2022/23 - the lowest relative contribution in over a decade, according to Cirrus.
“The further decline next year will see income tax on individuals contribute more to the fiscus than Sacu for the first time since FY2011/12 – assuming the income tax forecasts hold,” the analysts said.
“The revenue outlook is frankly worrying.”
Cirrus said it is the second time in five years that Namibia has undergone a Sacu revenue shock, following one in 2016, leading to a much larger budget deficit, capped expenditure, serious questions around deficit financing, and liquidity challenges.
“Given these signs, it is important to remark that those who cannot remember the past are condemned to repeat it,” Cirrus said.
“As often as we discuss and identify reforms, these are necessary to ensure steady and regular growth in revenue, specifically domestic revenue sources which would, in turn, reduce the reliance on Sacu and soften the blow of severe Sacu revenue shocks,” the analysts stressed. – Additional reporting by Phillepus Uusiku