Benefits of the Flat Tax System in Namibia [opinion]

IN 1985 two men – Robert Hall and Alvin Rabushka – proposed the flat tax system. In the early 1990s, there was a resurgence of interest in flat taxes in developing countries, in an effort to adapt to western styles of taxation.

Many countries in Eastern Europe and the Far East adopted a flat tax, putting pressure on Western European nations to lower their rates which were considerably high at that time.

Several European nations including Denmark, Finland, Norway and Sweden as well as Japan turned to the ‘Dual Income Tax’ or DIT as a means of simplifying their systems the same way Namibia does today.

However, 30 June as the closing date for submitting tax returns has always been a challenge for the taxpayers in Namibia. Many taxpayers struggle to complete tax returns due to its complexity and lots of pages and codes. Other taxpayers complain about the tax rates still being high or the formula too long to calculate tax. The majority of people ask how it is possible that they owe Inland Revenue after regularly paying high taxes.

However, Namibia is a country with a progressive tax system, which has led the country to generate huge revenue annually. Every year the minister of finance announces the budget with significant changes to the revenue. Can the country do more than this?

Is there any tax policy suitable for the country and the world to adopt? The first proposals for a ‘progressive’ income tax structure came from Karl Marx’s Communist Manifesto in 1848. But his proposals seem to be fading away because the tax returns create employment for accountants and lawyers. However, the tax return for flat tax is just one page which is called Postcard because of its simplicity.

Therefore, it will need no accountant or a lawyer to complete this one-page tax return. Taxpayers who earn two incomes from business and individual can also complete this one-page tax return. Progressive tax compels all taxpayers to pay their portion. Many countries are going according to biblical principles by giving one tenth (tithe).

The principle of tithe or flat tax does not violate the principle of equity, efficiency and administrative cost. The tax policy of Namibia is progressive and it uses the dual income tax meaning that the VAT is regressive and individual tax is progressive – meaning it changes as the income increases.

Flat tax systems in Eastern Europe have generally increased the tax of the governments who have introduced flat tax. Czech Republic, Russia, Romania, Slovakia, Estonia, Bulgaria, Lithuania, Latvia, Romania, Serbia, Ukraine and Macedonia adopted the flat rate. Some of the states in the US have adopted flat tax. Flat tax is good because it eliminates calculations and completing many pages of tax returns and increases personal allowance.

Progressive taxes are often so complicated and with so many loopholes that the wealthy are able to evade their obligations.

A flat tax would eliminate this unfair tax avoidance and force the wealthy to pay their full burden. The flat tax system promotes lower rates and broadens the tax base.

The American people have been paying into a progressive tax system since 1862 and Namibian people also have been paying into a progressive tax system since before independence. The progressive system implies that those with the broadest shoulders should carry the heaviest tax burden.

*Oscar Matengu is an MA student of taxation at University of Pretoria.

Source : The Namibian