General Staff Address by hon calle schlettwein, MP Minister of finance

GOVERNMENT OF THE REPUBLIC OF NAMIBIA

MINISTRY OF FINANCE

General Staff Address

By

HON CALLE SCHLETTWEIN, MP

MINISTER OF FINANCE

On the Occasion of the Roll-Out of Revenue Agency Reform

19th August 2016

Ms Ericah Shafudah, Permanent Secretary

Mr Titus Ndove, the Deputy-Permanent Secretary – State Accounts Department,

Ms Maureen Kidd, IMF Technical Expert,

Commissioner – Inland Revenue,

Commissioner – Customs and Excise,

The Revenue Agency Task Team Members,

Dear Staff Members of the Ministry of Finance,

Ladies and Gentlemen,

Members of the Media

Good Morning,

1.  Let me take this opportunity to thank you for honouring this invitation. This is a general staff meeting at which we reflect on our business and recommit ourselves to the performance targets which we set for ourselves in our Strategic Plan, Annual Work Plan and in our individual performance agreements.

2.  There are three main messages which I would like to share with you this morning. First, the downside risks to growth that our economy faces and the need to ensure a much more visible revenue collection effort in order to meet the funding needs of the budget. Second, is the need for each one of us to look back at what we have achieved in regard to our individual performance targets and redefine our strategies for greater efficiency and effectiveness in meeting, or even, surpassing our targets. Third, and most important, is the transitional arrangements we are making towards the establishment of the Revenue Agency within the next Budget year.

3.  Let me first start with the state of our economy and the revenue collection needs of the budget. Our economy has performed relatively well in the past years, in part because of sustained budgetary support to economic activities. For the current year, we see growth for the economy significantly slowing, from 5.3 percent recorded last year to about 4 percent, or even lower.

4.  The slowdown in economic activity is due to external as well as domestic factors which impact on us as a small, open economy.

5.  The external factors include:-

·  Low commodity prices as a result of low external demand and supply side factors. This impacts on production and profitability levels for commodity-based industries of mining, fisheries, and agriculture.

·  The slowdown and low demand in major trading partners. The Emerging Markets Economies, which have been a source of growth since the global financial crisis are undergoing tough, adjustment times. China, which is the main market for mineral commodities is experiencing its lowest growth rate of about 6 percent. Other BRICS economies of Brazil and Russia are already in a recession.

·  The South African economy, which is the most closely linked to Namibia is growing at about 0.1 percent. At the same time, Angola, which is another main trading partner and source of external demand for Namibia is undergoing difficult times due to the oil price collapse. This is already adversely affecting our retail sector. We are thus wedged between to large neighbouring economies and trading partners which are faced with severe structural challenges. The low growth for the South African economy is a concern not only for trade, but taxes from trade, especially SACU receipts.

·  Sub-Saharan African economies are growing at their lowest level of 1.6 percent in the last 10 to 15 years.

·  Financial market conditions, at home or abroad, are significantly weaker. Internationally, the outflow of capital from Emerging Markets and Developing Economies have led to tighter market conditions as well as the flow of investment to these economies.

6.  The domestic risk factors include:-

·  the severe drought situation, water shortages and the effects on industries that are dependent on water such as construction, beverage industries etc,

·  increasingly less liquidity is available in the domestic market which makes the financing of budget not particularly easy,

·  the limited fiscal space, given the revised macroeconomic and revenue outlook, and

·  the structural challenges which we face as a country in terms of skills formation, unemployment, equalization of income and poverty eradication.

7.  In this environment, therefore, domestic resources mobilization in the form of enhanced revenue collection and tax administrative reforms are critical to finance the country’s development agenda. Our results-based performance is critical to achieve and surpass the budgeted revenue collection targets that we have set for ourselves.

8.  This is possible only if we abandon the business-as-usual approach, become increasingly proactive, innovative and visible in the revenue collection and provision of taxpayer services. With this mind-set and new framework of conducting our duties, IRD and Customs and Excise staff are expected to:-

·  conduct targeted field operations, to ensure that all juristic persons are registered for tax purposes,

·  ensure that all entities who should pay tax are indeed paying taxes. For all fairness of the tax system, this is an obligation which each of our regional offices and each IRD and Customs and Excise manager should hit the ground running and monitor progress on a weekly basis,

·  leverage third party information to plug tax avoidance and tax evasion opportunities as well as strengthening tax assessment activity, and

·  we should implement the new tax proposals that were approved and due for implementation, lest we continue to forego revenue from these streams. This is especially in regard to the CO2 emission tax and the export levies.

9.  It is my expectation that we establish field and operational teams in all regions to implement, monitor and report on these activities on a weekly basis.

10. For the rest of us, we have all committed ourselves to our annual targets and performance agreement targets. We should be self-motivated and recharged to achieve and even surpass out targets. That is the performance driven culture that we should strive to achieve and live by.

On the Revenue Agency

11. Let me now turn my address to the second aspect of our consultation today and this is on the planned establishment of the Revenue Agency.

12. The Revenue Agency, which we have been calling and awaiting for, is coming.

13. As this is the first formal information sharing session on the progress made on the establishment of the Revenue Agency for Namibia, let me seize this opportunity to reassure you of our commitment to making this journey as objective and transparent as possible to all affected staff members within the Ministry of Finance. I also wish to alley unnecessary concerns and anxiety on the transitional period.

Rationale for the Revenue Agency

14. Our plan is that the Revenue Agency for Namibia will become operational in the next budget year. In line with the Cabinet principle decision, the Agency will enjoy a semi-autonomous status and it will be funded by the government and accountable to the Minister of Finance.

15. The main objective for establishing the Revenue Agency is to improve operational efficiency in the revenue administration function through scaling-up staff skills and productivity as well as offering a platform for the on-going tax reforms to enable the Namibian tax system to keep abreast with complexities and changes in the tax and business environment.

The sequence of events to date

16. Following the Cabinet decision in September 2013 to establish a Revenue Agency, the Minister of Finance constituted a Task team in February 2014 to assist in undertaking the required measures to bring about the establishment of the Agency over a 36-month calendar.

17. Experience from other countries who have gone through this process show that the establishment of a revenue agency follows a sequence of processes, which involves (1) taking a decision, (2) formulating a policy framework, and (3) drafting of the legislation, before establishing the revenue agency.

18. We also followed similar steps. In this regard, we made the following progress:

i.  Taking a decision

·  Cabinet decision was taken in September 2013 to establish a Revenue Agency for Namibia.

ii.  Formulation of a Policy Framework

·  The Ministry, with the assistance of the Task Team completed the Policy Framework which underpins and defines the institutional and governance structure of the agency, including transitional provisions.

·  The provisions of the Policy Framework formed the foundation for drafting the Establishing Act of the envisaged RA. In addition, the framework provides measures on strengthening the Tax Policy Unit at will remain at the Ministry of Finance.

·  The Policy Framework was approved by Cabinet in 2015.

iii.  Drafting of the Legislation

·  The Ministry also completed the Draft Layman’s Bill for the Namibian Revenue Agency, which was approved by Cabinet in March 2016 and cleared by the Cabinet Committee on Legislation on the 4th of August 2016.

·  The Bill will be submitted for legal scrutiny and clearance and for tabling in Parliament during the September/October 2016 session of Parliament.

·  The Task Team is continuing with activities in Transitional Plan in order to ensure seamless transition, once the Act has been approved.

·  To date, we have received three technical missions; one from the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) and two from the International Monetary Fund (IMF) through AFRITAC-South in Mauritius. These missions worked with the Task Team in conducting interviews with key stakeholders on the operational readiness of the Revenue Agency and provide guidance on the next steps.

·  The Ministry of Finance intends to tap on further assistance from other stakeholders and donor community to accelerate the transitional work (this shall include consultation with the National Treasury of South Africa and the South African Revenue Service (SARs)).

·  We will strengthen the composition and specialisation of the Task Team with personnel from within and outside the Ministry to accelerate the finalization of the deliverables and the consultation with key stakeholders such as the regional staff of IRD and Customs and Excise as well as the Labour Unions.

19. Let me now touch on the main design features of the envisaged Revenue Agency.

Main organizational model of the proposed Revenue Agency

·  The mandate of the Agency is the assessment and collection of taxes and duties and the deposit of collected revenue into the State Account.

·  In addition, the Agency will also be responsible for the enforcement of the applicable provisions of revenue laws and the provision of customs and excise services.

·  The policy function remains with the Ministry of Finance (tax policy, customs & excise policy, research and economic appraisal of tax and customs and excise policy). The Agency will be under the policy direction and supervision of the Minister.

·  the Minister shall appoint the management Board of Directors and its Chairperson for a term of three years. The Board shall assist the Minister to ensure the performance of the RA is optimal; through monitoring and enforcement of the performance targets and adherence to corporate ethics by the RA.

·  The Minister shall also appoint the Commissioner who shall be the Chief Executive Officer responsible for coordinating and managing the daily activities of the Revenue Agency.

·  the Board will be required to sign governance and performance agreements with the Minister.

·  The RA operations will be funded through government budget appropriations, based on costed and prioritized programmes. The Annual Report with audited Financial Statements is to be annually tabled in Parliament.

·  In exercising its operational autonomy, the RA shall adopt its own internal policies separate from those of the public service to achieve efficiency and effectiveness of service delivery. This includes among, others, financial, IT, procurement, risk management and most importantly, the human resources policies to enable the Agency to be able to attract and retain critical skills.

·  As I have stated, the tax policy function will remain with the Ministry. A new Tax Policy Unit will be established in the Ministry, in order to strengthen the function of Tax and Customs and Excise policy formulation and economic appraisal of such policies.

Transitional Issues: Human Resources Issues

·  Finally, let me highlight some of the transitional matters relating to personnel issues, which you may be keen to hear about and start preparing yourself going forward.

·  A lot of work to finalise the details of this exercise is currently underway. However, the broad policy approach entails the following:-

Ø  First, it should be noted that in our case, we are establishing the Revenue Agency for the purpose of attracting and retaining specialized skills needed to execute the functions of a modern tax administration and realise operational efficiency.

Ø  To achieve this objective, the Agency will be exempted from civil service laws and also to adopt processes and acquire systems to achieve operational efficiency.

Ø  Having this objective in mind, there will not be automatic transfer of personnel to the Agency. That is, all jobs in the Agency shall be treated as new and open to new applications based on the job requirements of the Revenue Agency.

Ø  The recruitment will be sequenced. Immediately after the Law is passed, the Board and the Commissioner will be appointed. The board will assist in the selection and appointment of the Commissioner and Senior Management team through a competitive process.

Ø  For the rest of the staff personnel, the first round of recruitment will be conducted internally by giving all the current staff of IRD and Customs and Excise who meet the requirements the first opportunity to apply for the positions. Once this stage (internal recruitment) is completed, all remaining vacancies will be advertised externally.

Ø  Whether internal or external, all applicants who are shortlisted will be subjected to background and integrity check process for purposes of asset verification and certificate of criminal conduct to determine suitability in the RA.

·  In terms of the Public Service rules, staff who did not make it for the Revenue Agency will, in the immediate, remain in the employment of the Ministry of Finance.

·  There will then be alternative options to be followed. Staff near retirement age may opt for early retirement. Some may choose to separate voluntarily. Others may be redeployed within the Public Service on the basis of existing opportunities within the service.

·  We understand that due care needs to be exercised in this process and consultation and communication is required to make this transition as smooth as possible.

·  We aim to ensure that this process is transparent, with a view to address the concerns of especially you, our employees.

·  We have noted that at every instance of rolling-out this message three years ago, you have been encouraged to strengthen your qualifying skills and most of you have already completed a number of qualifying courses, in addition to your work experience. That is commendable.

·  Further details regarding the initial staffing and organisational design will be made available in due course, once all exercises have been completed and evaluated accordingly.

Next Steps

20. To conclude, and allow for interactive discussions, let me highlight the key next steps and processes:-

·  The Draft Revenue Agency Bill will submitted to the Ministry of Justice for legal scrutiny and clearance. In this regard the Ministry will tirelessly seek to consult with the Ministry of Justice so that legal drafting is finalized for the tabling of the Bill during the September/October session of Parliament.

·  It is our intention and work plan to establish the Agency during 2017/18 budget year. All transitional arrangements are being undertaken with 1 April 2017 as the day of reckoning.

·  This is the first kind of elaborate consultation with IRD and Customs and Excise staff. This set of consultation and information sharing will now be rolled-out to all our regions. We shall then proceed to roll-out this consultation to other platforms such as the Labour Unions and other key stakeholders.

·  We are expanding and strengthening the composition of the Task Team in order for the team to perform its functions with optimum output.

·  The key remaining work is to finalize the organizational structure and personnel needs of the institution. The Board appointment and initial staffing for the Senior Management will commence after the Bill is passed into law.

·  We aim for s smooth transition process with no interruption to our business operations and the concerns of our people are objectively addressed.

21. While this transition is on-going, we should not relent on our tasks at hand, that of efficient revenue collection, tax administration and customs and excise service provision.

22. As such, it is my expectation and that of the public that the execution of our tasks and efforts we are making to ensure that all potential taxpayers in each region honour their tax obligations should be elevated and visible.

23. For all of us, this is a milestone reform. It involves about 80 percent of our staff compliment. We should work together and assist to make this reform a success.

I THANK YOU