Addressing the Plight of Poor Households by Zero-Rating Value Added Tax on Basic Commodities In Namibia

Difficult economic times began for Namibia in 2008 as real economic growth suddenly dropped to 4.3 per cent from the 5.5 per cent recorded in 2007. There were also wide fluctuations in the general level of prices of goods and services, including food commodities. Cost-of-living inflation rose to a high of 10.4 per cent from a low of 2.3 per cent in 2003 and unemployment rates were high, well in excess of 50 per cent; thus many households faced an increasing cost of living without reliable sources of income. The unfavourable circumstances of these households were exacerbated by inauspicious climatic and soil conditions, which greatly limit the role of subsistence farming as a viable source of livelihood in many parts of the country. In order to mitigate the impact of rising food prices and address food security concerns, the government decided to increase from eight to fourteen the number of basic commodities (foodstuffs and services) that had zero-rated value added tax (VAT) in 2000, as a means of improving access to basic foodstuffs and services needed for daily survival, particularly for the poor. This paper offers an ex-ante analysis of how the zero-of rating VAT on these basic commodities affected the well-being of poor households. We use data from the 1993/94 and 2003/04 National Household Income and Expenditure Survey and a mini survey conducted in 2009 to determine the consumption patterns of these commodities. The VAT burden lifted is determined and disaggregated by income decile. The analysis reveals that, contrary to expectations, rich households are more likely to benefit from VAT zero-rating than poor households. The findings of the study make it plausible to conclude that the zero-rating of VAT on basic commodities in 2000 and 2008 did not adequately target the commodities that the poor consume in large quantities and that they acquire in formal markets; hence the measure is unlikely to bring additional benefits to the poor. The government might have to reconsider the choice of VAT zero-rated commodities and include those that are consumed mostly by the poor and acquired in formal markets, while simultaneously strengthening and expanding other schemes such as social transfers which would benefit the poor disproportionately. (...)Addressing the Plight of Poor Households by Zero-Rating Value Added Tax on Basic Commodities In Namibia

Addressing the Plight of Poor Households by Zero-Rating VAT on Basic Commodities in Namibia

Though it is classified as an upper middle-income country and has an estimated annual gross national income (GNI) per capita of US$4,210, Namibia still faces the twin problems of relatively high levels of poverty and high income inequality. Difficult economic times began in 2008 as real economic growth dropped to 4.3 per cent from a high of 12 per cent in 2004, while cost-of-living inflation rose to a high of 10.4 per cent from a low of 2.3 per cent in 2003. The rate of unemployment (broad definition) grew to 51.2 per cent. Thus many poor households faced a rising cost of living without reliable sources of income. Their already dire situation was exacerbated by inauspicious climatic and soil conditions, which severely limit the role of subsistence farming as a viable source of livelihood in the country. (?)Addressing the Plight of Poor Households by Zero-Rating VAT on Basic Commodities in Namibia

Addressing the plight of poor households by zero-rating value added tax on basic commodities in Namibia

Difficult economic times began for Namibia in 2008 as real economic growth suddenly dropped to 4.3 per cent from the 5.5 per cent recorded in 2007. There were also wide fluctuations in the general level of prices of goods and services, including food commodities. Cost-of-living inflation rose to a high of 10.4 per cent from a low of 2.3 per cent in 2003 and unemployment rates were high, well in excess of 50 per cent; thus many households faced an increasing cost of living without reliable sources of income. The unfavourable circumstances of these households were exacerbated by inauspicious climatic and soil conditions, which greatly limit the role of subsistence farming as a viable source of livelihood in many parts of the country. In order to mitigate the impact of rising food prices and address food security concerns, the government decided to increase from eight to fourteen the number of basic commodities (foodstuffs and services) that had zero-rated value added tax (VAT) in 2000, as a means of improving access to basic foodstuffs and services needed for daily survival, particularly for the poor. This paper offers an ex-ante analysis of how the zero-of rating VAT on these basic commodities affected the well-being of poor households. We use data from the 1993/94 and 2003/04 National Household Income and Expenditure Survey and a mini survey conducted in 2009 to determine the consumption patterns of these commodities. The VAT burden lifted is determined and disaggregated by income decile. The analysis reveals that, contrary to expectations, rich households are more likely to benefit from VAT zero-rating than poor households. The findings of the study make it plausible to conclude that the zero-rating of VAT on basic commodities in 2000 and 2008 did not adequately target the commodities that the poor consume in large quantities and that they acquire in formal markets; hence the measure is unlikely to bring additional benefits to the poor. The government might have to reconsider the choice of VAT zero-rated commodities and include those that are consumed mostly by the poor and acquired in formal markets, while simultaneously strengthening and expanding other schemes such as social transfers which would benefit the poor disproportionately

October, 2010 Working Paper number 72 Ojijo Odhiambo United Nations Development Programme, Namibia John E. Odada Department of Economics, University of Namibia. Addressing the plight of poor households by zero-rating value added tax on basic commodities in Namibia

Difficult economic times began for Namibia in 2008 as real economic growth suddenly dropped to 4.3 per cent from the 5.5 per cent recorded in 2007. There were also wide fluctuations in the general level of prices of goods and services, including food commodities. Cost-of-living inflation rose to a high of 10.4 per cent from a low of 2.3 per cent in 2003 and unemployment rates were high, well in excess of 50 per cent; thus many households faced an increasing cost of living without reliable sources of income. The unfavourable circumstances of these households were exacerbated by inauspicious climatic and soil conditions, which greatly limit the role of subsistence farming as a viable so urce of livelihood in many parts of the country. In order to mitigate the impact of rising food prices and address food security concerns, the government decided to increase from eight to fourteen the number of basic commodities (foodstuffs and services) that had zero-rated value added tax (VAT) in 2000, as a means of improving access to basic foodstuffs and servicesneeded for daily survival, particularly for the poor. This paper offers an ex-ante analysis of how the zero-of rating VAT on these basic commodities affected the well-being of poor households. We use data from the 1993/94 and 2003/04 National Household Income and Expenditure Survey and a mini survey conducted in 2009 to determine the consumption patterns of these commodities. The VAT burden lifted is determined and disaggregated by income decile. The analysis reveals that, contrary to expectations, rich households are more likely to benefit from VAT zero-rating than poor households. The findings of the study make it plausible to conclude that the zero-rating of VAT on basic commodities in 2000 and 2008 did not adequately target the commodities that the poor consume in large quantities and that they acquire in formal markets; hence the measure is unlikely to bring additional benefits to the poor. The government might have to reconsider the choice of VAT zero-rated commodities and include those that are consumed mostly by the poor and acquired in formal markets, while simultaneously strengthening and expanding other schemes such as social transfers which would benefit the poor disproportionately

Effects of zero rating value added tax on government revenue in Namibia A partial equilibrium analysis

Purpose – The Government of Namibia has traditionally used fiscal (especially tax) policy as an instrument for annual budget formulation. Marginal tax rates for profits and various income brackets have been changed back and forth in response to changes in economic conditions. However, to date, no attempt has been made to evaluate the effectiveness of these reforms in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular. The purpose of this paper is to fill this information gap by analysing the implicationof the 2008 zero-rating of value added tax (VAT) on basic commodities for aggregate demand and government revenue. Design/methodology/approach – The study uses an analytical framework based on economic theory which posits that in an open economy, which trades with the rest of the world, aggregate demand for goods and services is made up of consumption demand, investment demand, government demand and net exports and that real sector equilibrium is attained when aggregate supply of goods and services is equal to aggregate demand for goods and services. Findings – Using the Namibia Household Income and Expenditure Survey results, the annual loss in government revenue attributable to this policy is,ceteris paribus, estimated to be N$310.4 million. With a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services is likely to increase by N$276.3 million per annum. In the medium-to-long-run, national income will have increased by N$303.9 million per annum. Taxes which are responsive to changes in the level of national income will have increased by N$85.7 million, compensating for just over one quarter of the estimated loss in government revenue of N$310.4 million. Research limitations/implications – The study has used a partial equilibrium model as opposed to computable general equilibrium model, which provides a consistent framework that meets most of the sectoral and institutional data requirements for the simple reason that a social accounting matrix which can be used readily to connect data from different sources, such as national accounts and household surveys and would thus have been ideal model for analysing the impacts of the VAT tax reform has not been developed for Namibia. Practical implications – The paper provides a number of practical policy options available for government including, but not limited to, increasing direct taxes, VAT rate on specific (luxury) goods and services and statutory VAT rate on all other commodities not zero-rated, other taxes such as taxes; and borrowing from external sources. Social implications – It is established that zero-rating VAT on all the basic commodities in 2008 reduces the VAT paid by all Namibian households by N$310.4 million per year, which represents the annual increase in the disposable income of all households. And with a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services will increase by N$276.3 million per year

Achieving Social Justice through Social Economic Rights Litigation

Human rights defenders are increasingly using to seek social justice. However, opponents have always expressed some disquiet on the suitability of courts in the adjudication of socio-economic rights, which have been deemed as disputes involving the distribution of socio-economic goods and services and, therefore, a prerogative of the political arms of government. Courts and other (quasi)judicial institutions have been said not to have sufficient expertise, information, nor the democratic legitimacy to interfere in the decisions relating to the policy choices that have to be made in the fulfilment of socio-economic rights. Advocates for the (quasi)judicial enforcement of socio-economic rights have, on the other hand, been convinced. This has been instrumental in several jurisdictions, including South Africa, Colombia, India and the United States, to advance constitutionally guaranteed rights, including the right to health, education, water, and housing. Increasingly, international and regional human rights adjudicative bodies have also become involved in the adjudication of socio-economic rights and have made significant contributions to the normative development of socio-economic rights as well as providing substantive redress to victims. Whereas socio-economic rights litigation is an attractive avenue for social transformation, critics are doubtful of the extent to which litigation can contribute to social change and achieve social justice. With this background in mind, this round table brings together scholars, activists, researchers, and lawyers from Africa, Latin America and India to discuss whether socio-economic rights litigation is a pragmatic strategy for safeguarding the right of every human person to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all persons can freely and fully realize their human rights and fundamental freedoms. The discussion shall examine socio-economic rights litigation and its potential to contribute to a new future of changing political, economic, feminist, and cultural engagement around Africa and people of African descent in the US and globall

Causal Effect of Financial Market Frictions and Flight to Quality on Cost of Credit in Kenya

Financial market conditions have been declining over the past ten years globally as most developing countries continue to adopt more liberal financial policies, such conditions may amplify adverse shocks to the economy. The Kenyan Banking sector was highly profitable before the implementation of financial market frictions, with industry return on equity’s average of 20%. The ratio of credit supply to gross domestic product was 35%; and the economy grew by 5.6 %. Nonetheless, after its adoption, listed Banks recorded negative Earnings per Share growth of 8.2%, compared to an average positive growth of 14.1%, The Net Interest Margin declined to 8.4% from 9.4%. Studies relating to financial market frictions, flight to quality and Cost of Credit have produced mixed results. It was on this basis that this study sought to establish the effect of financial market frictions and flight to quality on cost of credit in Kenya. The study adopted correlational research design. Secondary data from the Kenyan Market for the period January 2009 to December 2019 was analyzed. Augmented Dickey Fuller and Philips-perron unit-root test was used to test the stationarity of the data. VECM was estimated to establish the speed of adjustment towards the long run equilibrium; Wald statistics was also estimated to establish short run causalities amongst the variables. Based on cointegrating equations, the error correction term indicated a negative sign and was significant at 5% level (C (1) = -0.153042, .0429 < 0.05), an indication that a long run relationship exists amongst the variables. Wald statistics revealed that the estimated coefficients in the VECM were insignificantly different from zero (.8417; .5603; .9188>p=0.05),however, Central Bank rate was found to be different from zero and significant at 5% level (.0163>p=0.05), an indication that there was a short run casualty running from the Central Bank rate to cost of credit. The study therefore recommends that for Micro finance institutions to maximize their profits they should adopt new technologies like Mobile Banking for their credit facilities, this does not require administrative and operation costs, in a bid to cope with the market shocks and frictions. Keywords: Financial Market Frictions, Flight to Quality, Cost of Credit, Kenya DOI: 10.7176/JESD/12-6-07 Publication date:March 31st 202

Sensitivity of global river discharges under Holocene and future climate conditions

A comparative analysis of global river basins shows that some river discharges are more sensitive to future climate change for the coming century than to natural climate variability over the last 9000 years. In these basins (Ganges, Mekong, Volta, Congo, Amazon, Murray-Darling, Rhine, Oder, Yukon) future discharges increase by 6-61%. These changes are of similar magnitude to changes over the last 9000 years. Some rivers (Nile, Syr Darya) experienced strong reductions in discharge over the last 9000 years (17-56%), but show much smaller responses to future warming. The simulation results for the last 9000 years are validated with independent proxy data