Dividend Tax in Namibia

J. NANGOLO WRITES:

I am writing to formally raise concern regarding any proposed introduction of a dividend tax in Namibia.

While the objective of increasing government revenue is understood, introducing a dividend tax is likely to have adverse effects on investment, capital retention, and the broader economy.

Dividend taxes discourage investment by reducing the return on equity capital. This is particularly problematic in a developing economy such as Namibia’s, which relies heavily on private investment to stimulate job creation, industrialisation, and innovation.

According to the World Bank’s Doing Business reports (2020), economies that have introduced high dividend taxes have witnessed a slowdown in business confidence and foreign direct investment (FDI). Furthermore, empirical studies show that dividend taxation often leads to capital flight and tax avoidance, especially in economies with limited investment incentives.

Namibia already has a high overall tax burden compared to both global and regional peers. The top marginal personal income tax rate in Namibia stands at 37%, while corporate income tax remains fixed at 32% for non-mining entities. When compared to neighbouring Botswana (22%) and Zambia (30%), Namibia is significantly less competitive in attracting capital.

Moreover, it is important to highlight that dividend tax is effectively a second tax on the same profit. After a company pays corporate income tax on its profits, any dividends distributed to shareholders are subject to further taxation. This effectively increases the total tax burden on company profits. For example, assuming a corporate tax rate of 32% and a 10% dividend withholding tax with 50% of the profit after tax distributed as dividends:

· Profit before tax: N$ 1,000,000



· Corporate tax (32%): N$ 320,000



· Profit after tax: N$ 680,000



· Dividends distributed (50% of profit after tax): N$ 340,000



· Dividend tax (10% of dividends distributed): N$ 34,000



· Total tax paid (N$ 320,000 + N$ 34,000): N$ 354,000



· Effective tax rate (N$ 354,000 / N$ 1,000,000): 35.4%



This example clearly demonstrates that even with a lower corporate tax rate, the combined effect of corporate and dividend taxes results in a higher effective tax rate, which discourages investment and growth.

The introduction of an additional dividend tax would not only discourage domestic investment, but also place a heavier burden on small and medium enterprises (SMEs), which are already struggling under the weight of compliance costs, inflation, and interest rate volatility. These businesses are the backbone of Namibia’s economic diversification agenda, and taxing their limited returns could stifle entrepreneurial growth.

Rather than introduce a dividend tax, it would be more prudent to enhance tax compliance, reduce public sector inefficiencies, and incentivise capital retention and reinvestment through targeted relief measures.

In conclusion, I respectfully request the Ministry of Finance to reconsider the introduction of a dividend tax. The long-term developmental goals of Vision 2030 and Namibia’s Harambee Prosperity Plan require a business-friendly environment, not additional tax burdens.

We trust that economic growth and fiscal prudence can be achieved without disincentivising investment or undermining entrepreneurial confidence.



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