The fact that SSC may not have deducted PAYE from any benefits paid to you, does not necessarily mean that they are not taxable. Whether or not a person is required to determine and withhold PAYE from any amounts it pays to another person is set out in Schedule 2 of the Income Tax Act. Schedule 2 of the Income Tax Act only requires a person to determine and withhold PAYE, if the amounts it pays meet the definition of ‘remuneration’ in the schedule.
In respect of social benefits, this schedule specifically excludes from this definition ‘any pension or allowance under the Social Pensions Act, 1973… or any grant or contribution under the provisions of section 89 of the Children’s Act, 1960…’. Evidently this does not refer to the Social Security Act, Act 34 of 1994.
Remuneration as per the definition ‘means any amount of income which is paid or is payable by any person by way of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend…’ Without going into too much detail, in our opinion all these terms relate to an employer – employee relationship. There is clearly no employer – employee relationship between a recipient of maternity or sick leave benefits and the SSC.
But hold it, the definition now specifically includes any amount received or accrued by way of annuity, certain other amounts arising out of employment and certain amounts arising from membership of approved funds. Considering that amounts from employment are the responsibility of the employer while amounts from an approved fund are the responsibility of the fund administrator, the only remaining possible obligation for SSC to withhold PAYE can arise if the benefits would fall under the definition of ‘annuity’. The term ‘annuity’ is not defined in the Income Tax Act so one needs to refer to the common understanding of this term. The Oxford English dictionary defines an annuity as ‘fixed sum of money paid to somebody yearly, usually for the remaining part of his/her lifetime…’ Inland Revenue in fact has established the principle that an annuity requires a minimum payment period of 5 years. It is clear to me that neither any maternity –, nor any sick leave benefit falls into this definition as they are only paid for a limited period of less than 5 years. I therefore conclude that SSC is under no obligation to withhold PAYE.
As pointed out above this does not necessarily mean that these benefits meet the definition of ‘gross income’ and are therefore taxable. Looking at this definition it broadly includes anything derived from a source in Namibia, but specifically excludes amounts of a capital nature, and then goes on to include a whole list of specific amounts.
Conclusion
In short, I do not find any clause specifically including the SSC benefits. It then remains to consider whether it falls under the broad inclusions or the exclusion of amounts of a capital nature. The list of specific inclusions appears to implicitly exclude the SSC benefits as they do not derive from anything otherwise considered to constitute gross income. Generally receipts will only constitute gross income if they are the consequence of a deliberate effort to generate an income or to make a profit.
The flip side of this argument would be that the contributions by the employee towards these benefits are not made in the production of income and should thus not be tax deductible as required by section 17 of the Act. There is also no other specific deduction for these contributions in the Income Tax Act.
Having studied the SSC Act, it does not contain any overriding clause impacting the prescriptions of the Income Tax Act.
I thus do not believe SSC benefits fall into this category and am hence of the opinion that they do not constitute gross income and are not taxable.
Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.