Ministry of Finance

Hon. Saara Kuugongelwa-Amadhila Minister

Private Bag 13295 Fiscus Building, John Meinert Street Windhoek Tel. +264-61-209-9111 Fax.+264-61-230179   Deputy Minister: Hon. Tjekero Tweya   Permanent Secretary: Mr. Usutuaije Maamberua

The objectives of the Ministry of Finance can be outlined as follows:

1.      to manage and control government finances within the government’s economic policy;

2.      to formulate and administer tax laws and financial regulations;

3.      to manage public debt (domestic and foreign);

4.      to advise the government on appropriate economic, fiscal and monetary policies;

5.      to provide accounting services; and

6.      to supervise and control other financial institutions and public enterprises (parastatals, etc.)

Directorate: Inland Revenue 

The directorate comprises a head office and four regional offices situated in Oshakati, Walvis Bay, Windhoek and Rundu. The objective of the directorate is to contribute to the achievement of government targets in the field of income distribution and to generate revenue for the financing of public expenditure through effective collection of direct and indirect taxes.

  Directorate: Customs and Excise

The directorate comprises a head office, three divisions, viz., Division: Administration, Division: Legislation and Technical Services, and Division: Computerisation, and regional offices. The objective of the directorate is to optimise revenue collection through effective controls; to deter tax evasion and avoidance of customs controls; and to maximise voluntary compliance through clear customs procedures.

Directorate: Treasury

The directorate comprises five divisions, namely, Budget Formulation, Budget Execution, Financial and Data Systems, Internal Audit, and Stock Control. The objective of the directorate is to maintain balanced growth in sectors and government function areas through budgetary allocations; to ensure efficient cash management and proper implementation of the government’s fiscal policies; and to meet legislative requirements in the production of public accounts.

Directorate: Economic Policy and Advisory Services

The directorate comprises three divisions, namely, Fiscal, Monetary Policy and Financial Market Development; International and Regional Studies; and Macro-economic Analysis and Projections. The objective of the directorate is to design a user-orientated programme of economic research that will support the strategic priorities of the ministry and the government.

Directorate: Financial Institution Supervision

The directorate comprises two divisions, namely, Investment Institutions, and Provident Institutions. The objective of this directorate is to protect consumers of financial services, and ensure safety and soundness of the financial system.

Directorate: Administration and General Services

The directorate comprises four divisions, namely, General Services; Tender Board Secretariat; MVA Fund and Financial Services; and Medical Aid Scheme. Its objective is to provide a supportive service to the ministry in terms of human resources, financial services, logistics, Medical Aid Scheme administration and Tender Board Secretariat services.

  Offices

For many years only one office in Windhoek served the whole tax community. On 3 September 1993 this office was divided into a Head Office and a Receiver’s Office. Thereafter, due to the need to decentralise, the northern regional office (Oshakati) came into existence on 16 October 1991; the western regional office (Walvis Bay) on 13 September 1995, and the north-eastern regional office (Rundu) on 2 August 1999.

Establishment

In March 1990, the establishment consisted of 184 officials but has expanded to 374 officials.

Revenue Collected

Revenue collected from direct and indirect taxes increased from approximately N$1.2 billion in the 1991 financial year to approximately N$3.3 billion in the 1999 financial year.

Avoidance of Double Taxation Treaties

Progress in regional and international co-operation was made when a number of tax treaties were promulgated on 25 January 1999. The purpose of the agreements is to avoid double taxation and prevent fiscal evasion with respect to taxes between countries. Countries with which agreements have been signed include Germany, Frence, Sweden, India, Mauritius, South Africa, Romania and the Russian Federation. The conventions will, no doubt, encourage trade between these countries and Namibia.

Computer Systems

A new computer system was finalised and commissioned on 1 December 1998.

         New Sources of Revenue

The Additional Sales Levy Act was promulgated and came into operation on 1 September 1993.

Computerisation

With the financial assistance of the Danish government, the directorate has been able to computerise the operations of customs and excise in most of the offices and entry points. The Automated System for Customs Data (ASYCUDA), version 2.7, a computer system for collecting data on imports/exports and charging taxes is now operational.

Legislation

Various laws dealing with customs and excise were consolidated, Namibianised and gazetted as the Customs and Excise Act, 1998.

In terms of aircraft, postal, and freight control, memoranda of understanding are being finalised with Namibia Airports Company, NamPost and Woker Freight Services, respectively.

Training

As customs services were virtually non-existent at the time of independence, much emphasis was placed on the training of Namibian officials. The directorate has been offering training courses to its officers at all levels, using its internal resources and also through assistance from external organisations and other governments. With the financial assistance from the European Union, the directorate hosted and also participated in the SADC Regional Training Project. In doing so, the directorate acquired the skills and capacity to develop training modules/materials and is now satisfactorily equipped to do so independently.

Enforcement

During 1998, twenty-four companies were audited/inspected and a total amount of N$ 2.4 million assessed, of which N$1.6 million has already been recovered. Fifty-five companies have been visited over the past ten years and the total amount assessed on forty of them amounted to N$12.4 million in additional taxes.

Accession to World Customs Organisation (WCO) Instruments and International Involvement

Namibia became a member of WCO soon after the country became independent. The instrument of accession to the Harmonised System (HS) Convention has been approved by Cabinet and will be presented to parliament for ratification. During the past ten years, customs and excise administration has been actively involved in a number of trade and financial issues at various international and regional fora, such as, SADC, COMESA, SACU, and Namibia/Zimbabwe Trade Agreement. Namibia also became a de jure member of SACU, enabling the country to independently negotiate an appropriate share in the SACU Common Revenue Pool. This resulted in seven-fold increase in our share to N$2.2 billion. The Ministry of Finance also spearheaded the process of renegotiating the SACU Agreement.

Treasury managed to consolidate government bonds from eleven to three with maturities of four, seven, and twelve years. The purpose of the consolidation was to replace the previous eleven short maturities bonds with three new bonds benchmarked to the three most favoured bonds in South Africa. Increase in volumes and maturities of these bonds has also enhanced their liquidity. This consolidation was very successful. In fact, it was so successful that that the ministry was able to raise extra N$370 million.

During 1997/98, a project funded by Finland on institution and capacity building was implemented. Finn advisors worked very closely with the ministry’s staff members and, as a result, considerable progress was made. Treasury is also implementing recommendations made. Of course, some of the recommendations can only be implemented over a long term, but some will be implemented by the 2002/2003 financial year. 

The monthly fiscal projections of expenditure and revenue for the management and for the Bank of Namibia have been improving tremendously. This improvement has contributed to a healthier bank balance. Stricter controls are exercised over expenditure in line with cash balance in the bank. There has also been a very cordial relationship with the Bank of Namibia with regard to the issuing of letters of credit and all other foreign and local transfer of funds.

A monitoring unit was established with the objective of monitoring revenue collections and expenditure trends in various line ministries. Work of this unit should help identify any deviations so that appropriate remedies could be applied in time.

The directorate is severely understaffed and is working only with a skeleton structure. However, it has consistently achieved the goal of presenting the annual national budget, which takes into account the macroeconomic policy and other directives from Cabinet, to the National Assembly for promulgation in accordance with Article 126 of the Constitution, and the provisions of the State Finance Act, 1991. 

The directorate also undertook a vigorous campaign to update the Y2K status of all systems. With the commencement of this campaign, the directorate not only made the Funds Control System (FCS) Y2K compatible but also enhanced it to suit user requirements and to make it as error free as possible.

During the 1998/1999 financial year, staff of the directorate visited and inspected ninety-four stock control points. Further, for the first time since independence, all the thirteen foreign missions outside Africa were visited for inspection and training.

Eight audit reports were submitted to management during 1998/1999 financial year. Of the eight submitted reports, points were raised about two reports and the follow-up is continuing. 

Several cases of suspected fraud were investigated. some were finalised and others are at different stages of investigation and prosecution. 

Treasury has also implemented an Integrated Financial Management System that entailed the computerisation of all financial and related systems, such as, subsistence and travelling allowances, funds control, and bank reconciliation. The last phase of the project was completed in 1999.

           The Regional Setting

            Knowing that Namibia has a small domestic market, an inward-looking policy approach towards developing the real and financial economies of the country would be self-defeating. Therefore, Namibia has entered into a number of regional treaties aimed at co-operation within the southern African region with regard to trade, monetary, exchange and financial policies. Namibia is, thus, a signatory to the Southern African Development Community (SADC), the Southern African Customs Union (SACU), the Common Market for Eastern and Southern Africa (COMESA) and the Common Monetary Area (CMA).

            In addition to its regional co-operation initiatives, Namibia has developed its infrastructure in such a way that it provides strategic linkages to and from the subcontinent. Expansion and sophistication of the facilities of the Walvis Bay harbour, together with the development of a major export processing zone in the town have braced the coastal region to become a major industrial and trade growth point in Namibia. These developments have also facilitated the unfolding of the Walvis Bay corridor that serves as major outlet for southern-central Africa. With the development of a distribution centre within a free trade environment and the completion of the Trans-Caprivi and Trans-Kalahari highways, the port’s potential for offering access to the markets of Africa and Europe has been enhanced further.

            The Policy Environment

            Namibia has also given considerable attention to making its internal investment environment, including socio-political conditions and macro-economic fundamentals, as conducive as possible for enhancing foreign direct investment. Substantive tax concessions are granted to EPZ operators, manufacturers and exporters. The government has also remained committed to enhancing Namibia’s capacity for accelerated pace of economic development within an overall stable economic environment. 

            The Macro-economic and Financial Setting

            The country has made considerable progress in enhancing economic growth since 1990 despite the fact that during the past two years economic growth had been under pressure for various reasons. Also, due to Namibia's strong reliance on sectors vulnerable to climatic conditions and on commodity-based industries dependent on foreign markets, the country's growth trend is accompanied by considerable volatility.

            Fixed capital formation in real terms and in relation to GDP has increased noticeably, reflecting large capital outlays in the emerging manufacturing sector and the reinforced public sector investment programme.

            Strong inflationary pressures, which saw price increases close to 20% after Namibia became independent, have been contained through restrictive monetary policies and the inflation rate gradually decelerated to reach a 25-year low of 5% in March 1998.

            A combination of strong expenditure demands on the exchequer and slower economic growth lately caused the budget deficit to rise to 6% of GDP in 1996/1997. A strategy aimed at fiscal restraint and strengthened revenue collections, however, helped the Treasury to bring fiscal deficit under control, and a budget deficit was brought down to 3.8% of GDP by 1998/1999. Still, Namibia's public debt remains within manageable proportions -- total public debt equals 15% of GDP, of which less than 2% of GDP is attributable to foreign debt.

            Namibia's external position is characterised by fairly strong surpluses on current account, signifying that Namibia's domestic savings exceed its investments. The capital account, on the other hand, remains in deficit, reflecting substantial capital outflows seeking investments in financial assets in more mature financial markets in South Africa.

            Namibia has, however, made considerable progress in deepening and broadening its own financial system by creating institutions, mechanisms, instruments and opportunities for financial investments in Namibia. Consequently, the Namibian financial market has developed into a meaningful emerging market that is well-regulated and based on sound and contemporary principles and structures. The financial system contains full array of financial services and intermediaries, including commercial banks, building societies, insurance companies, portfolio managers, unit trusts, participation mortgage bond schemes, friendly societies, etc. The pride of the Namibian financial market is, of course, the Namibia Stock Exchange that was established in 1992 and has now grown in terms of market capitalisation into the second largest stock exchange in Africa.

            Fiscal and Monetary Policies

On the expenditure side of the budget, the government continued to concentrate a large share of its resources on the social sectors. About half of the 1995-96 budget was designated for this purpose. This reflects not only the need to correct the injustices of the past, but also a conviction that an educated and healthy society will ultimately be an economically prosperous one. Within the social sectors, the poor and vulnerable groups are preferentially targeted. User charges for government provided services, such as, schooling, medical care and water supply, are specifically directed at easing the distress of the poor and other disadvantaged groups. In addition, the government continues to allocate a large portion of the budget for development purposes with the result that it has provided a boost to the country's construction industry, and at the same time expanded and improved the social and physical infrastructure, thus enhancing future income generating opportunities. A number of infrastructural projects were undertaken to improve Namibia's links with its other neighbours, notably Zambia, Zimbabwe and Botswana. These would prove particularly important to provide access to landlocked countries and to promote inter-regional trade and tourism.

            On the revenue side, the government realised that it had to remain competitive in the region as far as its tax regime was concerned and decided to gradually lower the income tax rates. The maximum marginal rate on personal income tax that in 1990 amounted to 42% in 1990 was gradually lowered to 40%, then to 38%, and reached a recent low of 36% in the 1999/2000 budget. Corporate income tax for non-mining companies was also lowered and brought in line with personal income tax rates. Further, a wide range of tax concessions and allowances have been introduced to make Namibia an attractive investment destination. On the lower end of the income tax band, the threshold has consistently been raised to bring relief to the lower income groups. Also, led mainly by equity considerations, Namibia's taxes on domestic trade were substantially reformed. The initial 12% general sales tax on goods was lowered to 8% on goods, while most services now attract a sales tax rate of 11%. In addition, a system of additional sales duties was introduced ranging from a zero rate for basic consumer goods and 15% on luxury goods.

            Initially, sovereign Namibia lacked its own monetary system as it was rigidly linked to the monetary system of South Africa. Therefore, as a first step, a fully-fledged central bank, the Bank of Namibia, was opened on 16 July 1990. At that stage the bank fulfilled the role of banker to government and to local commercial banks, and of being supervisor of the monetary and exchange system. The bank's assets grew from N$193 million in 1990 to N$1530 million in 1998. The next step was to introduce Namibia's own currency, the Namibia dollar, on 15 September 1993, which allowed Namibia to build up foreign exchange reserves and to provide some scope for pursuing appropriate interest rate and monetary policies in the country. At the end of 1998, face value of Namibian currency issued amounted to N$523 million.

Achievements of the directorate over the last decade include:

1.      improving cash flow management over expenditure by moving from a quarterly manual system to a monthly computerised system during 1994;

2.      changeover from a manual to a computerised system of preparation of the annual budget for the ministry during 1995;

3.      implementing a direct claim procedure by all medical service providers against the Medical Aid Scheme of the government in September 1996;

4.      introducing a human resource information management system during May 1998 in the sub-division Personnel Services so as to ensure accuracy and effectiveness of information on personnel matters; and

5.      developing and installing of a computerised security system for the ministry in 1992.

The vision of the ministry is: to be an effective and efficient organisation, focused on its core business of excellent national fiscal and financial management, characterised by clear structures and policies, competent and motivated staff, effective teamwork in an environment of participative management, and sound external relations.

The mission of the ministry is therefore to promote macro-economic stability by formulating and co-ordinating the implementation of fiscal and financial policies that optimise economic growth and equity. In this effort, the ministry is guided by a number of guiding principles as follows:

1.      maintaining a strategic management approach and culture;

2.      participative management; 

3.      a pro-active approach in the formulation of national financial policies;

4.      accountability for performance;

5.      commitment to implementation of approved policies; and

6.      close co-operation with other central agencies and line ministries in national financial management matters.

The Ministry of Finance faces a number of challenges in the new millennium as follows:

1.      Shortage of skilled personnel continues to haunt the ministry as it continues to lose qualified and experienced staff through resignations and retirement. The challenge therefore would be to ensure that qualified and experienced staff are not lost by the ministry.

2.      Persistent unavailability of equipment, facilities and other resources continues to retard and/or hamper progress in the effective and efficient execution of the ministry’s functions. Inadequate accommodation facilities at border posts and regional offices are a major handicap in the smooth operation of such offices. The challenge is to find the necessary financial resources for providing adequate and decent facilities to taxation and customs and excise officers to enable them perform their duties properly.

3.      As we enter the new millennium, the ministry will further be challenged to improve its operations through computerisation of the various functions. 

4.      Some of the implications of Namibia’s membership of a number of regional trade groupings and arrangements are that import tariffs will have to be eradicated, with the result that revenues from these sources will dry up. Hence, the challenge would be for the ministry to devise ways and means of closing the revenue gap that would be caused by such developments.