Central bank recommends zero taxes on dairy products

The Bank of Namibia has suggested subsidies or zero-rated taxes on all milk products to allow Namibian-made dairy products to compete with those imported.

According to the Bank of Namibia’s annual report, subsidies or zero taxes on all milk products could put Namibia’s dairy industry on par with those in neighbouring countries.

“Namibia is currently at a disadvantage when competing with neighbouring countries’ milk products as the latter’s products are zero-rated across the board in those countries, while only fresh milk is zero-rated in Namibia,” reads the report.

This means Namibia’s dairy industry cannot compete with similar products from abroad.

According to the central bank, the influx of cheaper dairy imports has put the Namibian dairy industry on the verge of extinction.

“South African products are cheaper not only because that country has larger economies of scale and cheaper inputs, but also because milk products attract no sales tax,” says the report.

This is despite Namibia’s eight-year Infant Industry Protection initiative, implemented to shield the industry, which expired in 2008.

“Despite these protective measures, the sector has struggled to meet domestic demand,” reads the report.

Nonetheless, the dairy industry has an opportunity to penetrate its neighbours’ markets.

However, the industry can benefit from neighbouring countries markets such Angola with its high demand for cultured milk products (Omaere, Oshikandela and Oshitaka).

Additionally, there should be tax incentives for those importing agricultural raw materials intended for value addition.

“Raw materials imported into the country that are used as intermediate goods to produce finished goods should not be subjected to unnecessary levies,” notes the report.

The bank used an example of wheat which Namibia imports to make pasta.

However, upon entry in Namibia, it becomes 5% more expensive due to the 5% levy imposed by the Namibian Agronomic Board (NAB), creating a disadvantage when exported.

“If pasta is exported to the southern African market, it faces a disadvantage when competing with South African or other global pasta manufacturers, as pasta exports are indirectly taxed in Namibia,” reads the report.

The bank says although NAB uses its levy revenue for research and agricultural growth domestically, it is killing the industry.

“NAB is making the millers worse off and killing the industrial process,” says the report.

In South Africa, they have an Agro-Processing Support Scheme that aims to encourage investment in agro-processing, which adds value to agricultural products.