As Namibia prepares to harness the economic potential of significant oil discoveries in the Orange Basin, the Namibia Revenue Agency (NamRA) is implementing a comprehensive strategy to ensure the nation captures its rightful share of revenues from the burgeoning extractive sector. This strategic preparedness, detailed in NamRA’s Tax Cafe newsletter authored by Manager: Legal Services Loide Hamutumwa, centres on specialised capacity building, legislative refinement, and robust enforcement to overcome the unique challenges of taxing non-renewable resources.
NamRA acknowledges that administering government revenue from the extraction of non-renewable natural resources presents special difficulties. Consequently, the agency is intentional about investing in its people to build sector focused capacity. A cornerstone of this effort is the advanced training of key personnel. Hamutumwa, herself among the first graduates sent out by the Government with funding from Petrofund to study Oil and Gas Taxation in the United Kingdom, exemplifies this commitment. She graduated with a distinction in Master of Law: Petroleum Taxation and Finance from the University of Dundee’s Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP), equipping NamRA with critical expertise.
The agency has first recognised the existing capacity gaps, and the skill sets required, actively developing its workforce in three critical areas directly benefiting the country: An understanding of the critical policy, taxation and legal issues in the petroleum industry; Strong foundation on the principles for effective petroleum taxation regimes including best practices and challenges; and Robust understanding of the economic evaluation methodologies used for investment decision making. This targeted development ensures NamRA can navigate complex fiscal landscapes, recognising that you can’t mine success without digging into talent.
Crucially, NamRA highlights that Namibia’s existing fiscal regime for petroleum remains untested in absence of production. The agency stresses the need to constructively address key policy and legislative recommendation… ensuring that the most suitable mix of tax bases and tax rates meet the Namibia’s economic tax policy objectives in terms of revenue, risk, competitiveness, and investment incentives. The overarching goal is a win-win situation where the Namibian government and its people benefit from the natural resources through a taxation-royalty fiscal regime with direct state participation, while also providing a fair return to the investors.
The urgency of this preparedness is amplified by Namibia’s fiscal context. NamRA notes the importance of ensuring fiscal sustainability through Domestic Revenue Mobilisation (DRM) to finance Sustainable Development Goals (SDGs) and meet the expectations of the Namibian people, particularly considering the public debt vs GDP ratio. However, the agency is acutely aware of the risks accompanying the sector’s development, stressing that the burgeoning oil and gas sector come with its problems.
A primary concern is the potential limitation of Namibia’s taxing rights through outdated mechanisms. Old Double Taxation Agreements (DTAs) or ‘tax treaties’ might not respond to new development as the world is advancing and may limit taxing rights, and tax avoidance through treaty shopping. NamRA is proactively addressing this through in-depth analysis of the tax treaties and the domestic law, continuously assessing whether non-resident companies or non-resident persons qualify for a relief under a tax treaty and verifying affected tax obligations.
Furthermore, NamRA anticipates sophisticated tax avoidance strategies. Companies may seek to avoid tax on gains, presenting special challenges to tax administration, with the tax justice proposition… to prevent creating an invisible Permanent Establishment. The agency identifies challenges in establishing taxable presence especially during exploration: It can be challenging to trigger a Permanent Establishment where subcontractors provide services during exploration stage given the mobility of the assets, and the short durations of the services provided which makes difficult to trigger a fixed place of business in the source country. Companies may also opt to operate through agency and restructure activities to not exceed the time threshold for triggering a taxable presence.
To counter these threats, NamRA is proactive in dealing with issues such as Transfer Pricing, non-disclosure of income, treaty shopping and use transnational corporate structures or financial instruments to shift profits to low or no-tax jurisdictions. The agency is committed to safeguarding the tax base against transfer pricing and profit shifting to overseas tax havens. Enforcement will be rigorous: Relevant tax laws will be implemented, penalties will be imposed for non-compliance, regional and international tax instruments will be invoked to request and exchange information and tax crimes will be litigated to recover state revenue.
NamRA unequivocally asserts Namibia’s sovereign right to tax, reinforced by legislation. As the host country, Namibia has the right to tax. The amended Income Tax Act No 24 of 1981… subject[s] companies operating in the Exclusive Economic Zone of Namibia (EEZ) to the fiscal laws of Namibia, further strengthening the source of the income to be from Namibia. The complexities posed by vertically integrated multinationals, making the value chain complex and costly to manage, are being mitigated through continuous engagement with regional and international partners, aiming for disciplined tax administration and fair enforcement.
Underpinning this mission is the people-centred NamRA Leadership Model. The agency is nurtur[ing] the skills and ambitions of its employees as part of its strategy in shaping the tax, customs and excise professionals of the Future, motivating the workforce to upskill and appreciate the magnitude of taxing and administering the Petroleum and Green Hydrogen activities in Namibia. With the Orange Basin poised to transform Namibia’s economy, NamRA is signalling its determination to ensure the nation’s resource wealth translates into tangible, lasting benefits for its people, adamant that the extractive industry should fuel a better future for Namibia.