Finance asked for tax exemption on retirement funds

The Ministry of Finance and Public Enterprises has been asked to amend the tax bill so that Namibians would be exempted from paying tax on their retirement funds.

This was a submission made in parliament on Tuesday by member of parliament (MP) Elder Filipe.

Retirement funds are currently taxed as income because pension fund contributions are deducted from salaries before taxation.

This means part of people’s salaries was never taxed and is therefore not considered as double taxation.

Filipe said the taxation of pension money, particularly for retirees, is excessively punitive.

“… and it unfairly penalises citizens during a vulnerable time in their lives,” he said.

The MP said such tax policies could be detrimental to retirees’ well-being.

Economist Omu Kakujaha-Matundu says it would be good if retirement funds were not taxed, however, the government is only taxing income which has not been taxed.

“It would have been nice if pensioners were not paying taxes on their meager pension. Unfortunately, a part of your income that forms part of your pension was not taxed. So, the taxman will come after his money,” he says.

Kakujaha-Matundu says taxation only comes into play when income is above a certain threshold, which the government has recently increased.

Economist Josef Sheehama says pension funds should be tax free, however, tax cuts are known to lower government revenue and result in either a budget deficit or a rise in national debt.

“The Ministry of Finance and Public Enterprises should establish a system to account for the number of retirees and the effects of exempting them,” he says.

Sheehama says the ministry could consider lowering the tax rate applied.

“People should not have to pay double taxes, because they pay taxes on both their salaries and pensions. This is unfair,” he says.

He says income tax is the biggest expense from many people’s retirement funds.

“Income taxes may be the single biggest expense on a retired pension where the recipient is expected to earn a living throughout their lifetime,” Sheehama says.

He says tax exemptions on retiree benefits would help pensioners live a better life while the government works out a plan to lower the deficit.