For many years now (since the 2012 tax year) the maximum tax deductible contribution by an employee towards a retirement fund has stagnated at N$ 40,000 per annum, and ever since Act 24 of 1981 was promulgated, no allowance was granted for contributions above foresaid tax deductible limit or for additional voluntary contributions! To make things worse from the taxpayer’s point of view, the increase in the maximum tax deductible contribution by an employee has been adjusted only infrequently since 1981 and has never kept up with inflation.

If it were possible to determine, which it is not, it would certainly be interesting to establish how much of the capital in retirement funds today actually represents member contributions that were never allowed as a tax deduction. My guess is that it will be around 25%. This would mean that one-quarter of all tax deducted by government would in that case be deducted irregularly. From the fund average member point of view, he/she is paying away in unnecessary tax around 5% of retirement capital assuming all one-third of all retirement capital is commuted tax free and further assuming an average rate of tax on the unfairly taxed two-thirds balance at an average rate of tax of 30%.

This can certainly not be considered to be fair towards the taxpayer where fairness is towards the taxpayer is internationally accepted as a key expectation of any tax regime. Despite this fact, government believes that for the tax concessions the Income Tax Act affords, justifies that it considers  ‘captive retirement capital’ as a source of cheap debt funding and for the advancement of its socio-economic development objectives.

It is high time that government recognises its obligation towards the taxpayers from a fairness point of view. It is also high time to adjust the maximum tax deductible contribution the taxpayer may make to a retirement fund. Perhaps NAMFISA as custodian and protector of pension fund members should pursue this leakage of retirement capital to... Government

 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.