COLLECTION OF LEVIES MINISTRY OF ENVIRONMENT AND TOURISM REPORT OF THE AUDITOR-GENERAL ON PERFORMANCE AUDIT STUDY ON

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1 REPUBLIC OF NAMIBIA REPORT OF THE AUDITOR-GENERAL ON PERFORMANCE AUDIT STUDY ON COLLECTION OF LEVIES MINISTRY OF ENVIRONMENT AND TOURISM FOR THE FINANCIAL YEARS 2007, 2008 AND 2009 Published by authority Price (Vat excluded) N$ Report no 963

2 REPUBLIC OF NAMIBIA TO THE HONOURABLE SPEAKER OF THE NATIONAL ASSEMBLY I have the honour to submit herewith my performance audit report of the Collection of Levies in the Ministry of Environment and Tourism for financial years 2007, 2008 & 2009 in terms of Article 127(2) of the Namibian Constitution. The report is transmitted to the Honourable Minister of Finance in terms of Section 27(1) of the State Finance Act, 1991, (Act 31 of 1991) to be laid upon the Table of the National Assembly in terms of Section 27(4) of the Act. WINDHOEK, June 2011 JUNIAS ETUNA KANDJEKE AUDITOR-GENERAL

3 TABLE OF CONTENTS Abbreviations CHAPTER 1 1. Background Introduction Motivation... 1 CHAPTER 2 2. Design of audit Audit scope Methods of data collection... 2 CHAPTER 3 3. Description of the audit area Mission statement Objectives Financing and budgeting Staffing Organisational structure System description Gambling and casino... 8 CHAPTER Findings CHAPTER Conclusion CHAPTER Recommendations ANNEXURE i

4 ABREVIATIONS MET NTB DoT MoF Ministry of Environment and Tourism Namibia Tourism Board Directorate of Tourism Ministry of Finance ii

5 CHAPTER 1 1. BACKGROUND 1.1 Introduction The report is to present the findings according to the audit conducted on the Ministry of Environment and Tourism (MET). The focus area being the Gambling and Casino section within the MET and accommodation establishment within the jurisdiction of Namibia Tourism Board (NTB). 1.2 Motivation The audit was motivated by the concerns raised in the general media that gambling and casino as well as accommodation business operators do not declare the correct levies to the Ministry, NTB and possibly do not pay tax to the Inland Revenue at the Ministry of Finance (MoF). The concerns raised are the following: There are no inspectors to do the monitoring; Accommodation businesses do not declare the correct levy amount to the NTB, neither pay tax to the Inland Revenue; The NTB has no rights or access to the financial statements of the accommodation businesses; There is no renewal of annual fees for registered operators because this was not provided for in the Act; Tourism Inspectors have no power to give spot fines to illegal accommodation businesses; Casino and Gambling house licenses are issued to individuals that do not qualify; Some Gambling houses/individuals do not have licenses; License levies and taxes from illegal operators are not collected; and The Ministry takes long to approve applications for gambling licenses. The possible results of the above concerns are as follows: If the revenue collected is not declared properly by the operators, the contribution that NTB is making to the economy of Namibia will not be appreciated; Loss of revenue from uncollected license levies and taxes; Gambling houses and shebeens obtain licenses illegally; A lot of shebeens have gambling machines that are not licensed. 1

6 CHAPTER 2 2. DESIGN OF THE AUDIT 2.1 Audit scope The audit focused on the operation of the Directorate of Tourism (DoT) within the MET and operation of accommodation establishment within NTB. Audit limitation The audit was limited due to the limitation by statutory provision i.e. Namibia Tourism Board Act No. 21 of 2000 Section 28 of the Act which stipulates that: (1) A member or an inspector or any other who, in the performance of his or her functions under this Act, acquires any information in relation to the business or affairs of any accommodation establishment or any regulated business or any person who applied for a license in terms of this Act shall not disclose such information to any person, except- (a) For the purpose of the performance of his or her functions under this Act; or (b) When required to do so by any court of law under any law. (2) A person who contravenes subsection (1) commits an offence and shall on conviction be liable to a fine not exceeding N$ or to imprisonment not exceeding two years or to both such fine and such imprisonment. Time limits The periods under review are 2006/2007, 2007/2008 and 2008/2009 financial years. 2.2 Methods of data collection The auditors conducted interviews and reviewed documents as methods of gathering information for the audit Interviews During the audit at MET and NTB, only 6 interviews were conducted with different officials due to the audit limitation as described in paragraph 2.1. The motive for the interviews was to gather more information on the operations of the auditee. The following people have been interviewed during the pre-study: 1 x Deputy Director Tourism division; 3 x Control Officers Gambling division; 1 x Manager-NTB Industry Services and 1 x Manager-NTB Finance and Administration. 2

7 2.2.2 Document analysis Casino and Gambling Houses Act 32 of 1994; statistical data ( ) on levies paid for accommodation establishment within MET and gambling and casinos within NTB; staff establishment; annual budget ( ); accommodation establishments Tourism Board Act no 21 of 2000 and amendment of regulations of 1994, 1995, All the above documents have been analyzed in order to understand the operation of the auditee. 3

8 CHAPTER 3 3. DESCRIPTION OF THE AUDIT AREA 3.1 Mission statement The mission of the Directorate of Tourism (DoT) is to develop the tourism industry in a sustainable and responsible manner to contribute significantly to the economic development of Namibia and the quality of life of all her people. 3.2 Objectives Objectives and description The development and maintenance of government tourism and gambling policies. Main Operations of the Directorate of Tourism are: Formulation of Government Planning and policies within tourism and gambling; Control through registration, licensing collection of levies and taxes and assessment of tourism and gambling projects or extension of existing projects; Collection, interpretation and dissemination of tourism and gambling statistics; and Initiation of tourism development projects through investors. 3.3 Financing and budgeting Table 1 Financial years Directorate of Tourism allocation NTB revenue N$ N$ 2006/ / / Totals

9 3.4 Staffing Table 2 5 Number of positions filled Number of vacant positions Financial year Entity Staff establishment 2006/2007 Directorate of Tourism MET NTB staff complement NTB board members /2008 Directorate of Tourism MET NTB staff complement NTB board members /2009 Directorate of Tourism MET NTB staff complement NTB board members Organisational structure Ministry of Environment and Tourism The MET is headed by the Honorable Minister and Deputy Minister and below is the Permanent Secretary. The DoT is divided into two Divisions namely: Gambling and Casino and Tourism Development which are headed by deputy directors. 3.6 System description Establishment of Namibia Tourism Board Section 2 of the Namibia Tourism Board Act, 2000 (Act No. 21 of 2000) here-in referred to as the Act, stipulates the establishment of the Namibia Tourism Board as a juristic person Functions of the Board The functions of the Board are defined in section 3 of the Act The Constitution of the Board 1. Section 4 of the Act stipulates how the Board should be constituted. The Board shall consist of five members appointed by the Minister of whom- (a) One shall be a staff member of the Ministry; (b) One shall be a staff member of the Ministry of Trade and Industry nominated by the Minister of Trade and Industry; (c) One shall be a staff member of the MoF nominated by the Minister of Finance; and (d) Two shall be persons who represent the tourism private sector who shall be selected by the Minister from nominations made by that private sector.

10 2. The Minister shall by notice in the gazette announce the names, positions and nationalities of the members appointed in terms of sub-clause (1). 3. Members shall be appointed for their knowledge of and ability and experience in the tourism industry or for their suitability otherwise for appointment as members. 4. The Minister shall appoint one member as chairperson and another member as vice-chairperson of the Board. 5. If the chairperson is for any reason unable to act the vice-chairperson shall perform the functions of the chairperson Tourism levy The payment of levy is prescribed in regulation 2 of the regulations relating to levy payable by accommodation establishment which states that every owner of a registered accommodation establishment must pay a levy to the NTB Basis for calculating levy Regulation 3 of the regulations relating to levy payable by accommodation establishments stipulates that 2% of the total amount shall be charged Levy period and time and manner of payment Regulation 4 relating to levy payable by accommodation establishments stipulates that the levy must be paid in respect of every period of two months from the effective date of these regulations or the date of registration Additional charge on late payment Regulation 5 relating to the levy payable by accommodation establishments stipulates that an owner, who fails to pay the levy in full on the last day for payment as prescribed by regulation 4(2)(a), must pay, in addition to the levy, a charge equal to 5 % of any outstanding amount of the levy in respect of each month or a part of a month during which the outstanding amount remains unpaid Offences and penalty Offences and penalties relating to the non-payment of levies are stipulated in regulation 6 which stipulates that an owner who, on expiry of a period of 14 days after the Board has sent a written demand to the owner requiring him or her to pay any outstanding amount of the levy or interest accrued in terms of regulation 5, fails to pay that amount is guilty of an offence and liable to a fine not exceeding one year or both such fine and such imprisonment Registration process Form of application, certificates and other documents The procedures to apply and register an accommodation establishment are stipulated in regulation 2 (1-2) which stipulates that registration of an accommodation establishment should be done in a form approved by the Minister. 6

11 Classification of accommodation establishments The classification of accommodation establishments are specified in regulation 3 relating to the registration of accommodation establishments which states that accommodation establishments are classified into the following classes: Backpackers hostels Bed and Breakfast establishments Campsites Camping and Caravan parks Guest farms Guest houses Hostels Hostel Pensions Lodges (other than tented lodges) Resorts Rest Camps Self-Catering establishments Permanent tented camps and tented lodges Register of accommodation establishment Regulation 28 of the regulations relating to the registration of accommodation establishment stipulates the manner in which the register of a registered accommodation is to be kept Guest register and returns According to regulation 29 an owner of a registered accommodation establishment must keep a register containing information of guests as prescribed in terms of sub-regulation (2) which states that on arrival of a guest to whom accommodation is provided at an accommodation establishment the following particulars must be entered in the register in respect of the guest: Initials and surname or operators name in case of a group; Citizenship or country of residence; Permanent postal address of guests or operators in case of a group; Number of persons in a group; Date of arrival; Number of nights booked; Room numbers; Registration number of the vehicle with which the guest is travelling, if any; Name of next destination; Signature of guest or operator in case of a group; Envisaged date of departure; 7

12 Registered accommodation establishment Regulation 37 stipulates that a person who, on the date of commencement of these regulations, is operating an accommodation establishment: (a) Which was registered under the Accommodation and Tourism Ordinance, 1973, (Ordinance 20 of 1973) and (b) which is being conducted under a name indicating a class of accommodation establishment not corresponding with the class under which that accommodation establishment falls in accordance with the classification set out in regulation 3, read with regulation 12 through 24, must ensure that the description of the class is affixed within 5 years Exemptions Regulation 38 stipulates that the following accommodation establishments qualify for partial or wholly registration requirement exemptions if: The accommodation establishment forms part of a training institution; the establishment is conducted by a church or other religious institution or a charity organization; if the establishment is located on the same premises as the religious institution; the Board is satisfied that the church or other religious institutions or the charity organizations is operated as such in good faith; and tourists are accommodated only for purposes connected with the activities of the religious institutions Transitional arrangement Regulation 39 prescribes that any person who was operating an accommodation establishment of a class which was not required to be registered under the Accommodation and Tourism Ordinance, 1973 (Ordinance 20 of 1973) but which is required to be registered under the Act and in accordance with these regulations may continue to operate that accommodation establishment without registration of the establishment under these regulations: During a period of three months following the date of commencement of the regulations; and if within that period an application is made for the registration of the accommodation establishment, until the application is disposed of or, withdrawn and if the application is refused for a further period of three months. 3.7 Gambling and casino Secrecy (1) No member or alternate member of the board or an inspector or any other person who, in the performance of his or her functions under this Act, acquired any information in relation to the business or affairs of a license holder or any other person, shall disclose such information to any person, except- (a) for the purpose of the performance of his or her functions under this Act; or (b) when required to do so by a court of law or under any law. 8

13 (2) Any person who contravenes the provisions of subsection (1), shall be guilty of an offence and on conviction be liable to a fine not exceeding N$ 2000 or to imprisonment for a period not exceeding 6 months The types of licenses According to Section 12, subject to the provisions of the gambling and casino Act 32 of 1994, the Minister may grant: (a) (b) A casino license to any person who in terms of section 13 qualifies for such license or, a gambling house license to any person who in terms of section 14 qualifies for such a license Persons to whom casino licenses may be granted According to Section 13(1), a casino license shall not be granted to any person other than a person who conducts an accommodation establishment. According to Section 13(2), a casino license shall authorize the playing in or on the premises of the accommodation establishment in respect of which such license has been granted, or such part of such premises as is specified in the license, of any prescribed games Persons to whom gambling house licenses may be granted According to Section 14(1), a gambling house license shall not be granted to any person other than a person who (a) (b) (c) conducts an accommodation establishment; or carries on a retail liquor business; or carries on a bookmaking business Restrictions upon grant of licenses According to Section 15, a casino license or gambling house license shall not be granted to any person who (a) (b) (c) (d) (e) (f) (g) is under the age of 21 years; is an unrehabilitated insolvent; has at any time during the period of 10 years preceding his or her application served a sentence of imprisonment for a period longer than 12 months for any offence without having been given the option of a fine in respect of such offence unless the Minister upon recommendation by the board, rules that such offence was of a nature which does not imply that he or she is an unsuitable person to hold a license; has been convicted of an offence under this Act and, within a period of 5 years after that conviction, has again been convicted for an offence under this Act; is an officer; is the spouse, parent or child of any person referred to in paragraph (b), (c), or (d); or is a body corporate or an association of persons of which any director, member or partner is disqualified in terms of paragraph (a), (b),(c), (d), (e) or (f). 9

14 3.7.6 Procedure for applications According to Section 17(1), every application in terms of section 16 shall (a) be in the prescribed form; and (b) be accompanied by the prescribed documents and information and proof of the payment of the prescribed application fee, and shall be submitted to the secretary of the board Report of inspector According to Section 18(1) of the Act, an inspector shall in respect of every application for the grant or removal of any license report in writing to the board whether the premises and the accommodation establishment or retail liquor business to which the application related: (a) are in good repair and in all respects suitable for the proper conducting of a casino or gambling house; or (b) if such accommodation establishment or retail liquor business has not yet been erected, equipped or completed, would upon completion thereof, in accordance with the plans thereof, be suitable in all respects for the proper conducting of a casino or gambling house. An inspector shall further call to the attention of the Board any matter which, in his or her opinion, should be taken into account the consideration of application Minister to decide on applications According to Section 21, the Minister shall decide on every application made in terms of section 16 and may, after consideration of the application and all documents and information submitted to him or her in terms of section 20 (3), grant or refuse such an application The duration of license According to Section 23(1), any license issued in terms of section 22 shall be valid until the date on which (a) the holder thereof surrenders it in writing to the Minister; (b) it is withdrawn by the Minister under section 24 or by a court of law under section 51. According to Section 23(2), where a license is suspended under section 24 the holder of such license shall not exercise any right or privilege conferred by such license during the period of suspension Withdrawal or suspension of license According to Section 24(1), the Minister may, on the recommendation of the board, suspend, for such period as the Minister may determine or withdraw from such date as the Minister may determine, any license, if (a) the license holder contravenes any provision of this Act; (b) the license holder or any person acting on his or her behalf - (i) furnished information in or in connection with his or her application for the grant, transfer or removal of such license knowing it to be false or not knowing or believing it to be true; or 10

15 (c) (d) (e) (f) (ii) failed to comply with any provision of this Act or any prescribed term or condition within a reasonable period after he or she had been ordered by the Minister to do so; the license holder has, without the prior written consent of the Minister, failed to conduct the casino or gambling house of which he or she is the license holder, for a period of at least three consecutive months; the license holder fails to pay any amount prescribed in terms of this Act within the prescribed period; the license holder fails to pay out forthwith any prize won in the casino or gambling house; or the license holder is convicted of any offence under this Act. According to Section 24(2), the Minister shall not under subsection (1) suspend or withdraw any license without giving the license holder concerned an opportunity of being heard personally or by such license holder's agent. According to Section 24(3), the Minister may at any time on the recommendation of the board revoke any order of suspension issued in terms of subsection (1) if the reasons for such suspension have been remedied to his or her satisfaction Levies payable on income of casinos and gambling houses According to Section 41(1), subject to subsection (2), every holder of a casino license and every holder of a gambling house license shall be liable to pay, for the benefit of the State Revenue Fund a levy on income as may be prescribed which such holder derives from the conduct of the casino or gambling house concerned Appointment of inspectors According to Section 42(1), the Minister may designate any person in the employment of the Public Service as an inspector The powers of inspectors According to Section 43(1), in order to ascertain whether the provisions of this Act or any terms, conditions or restrictions imposed under this Act have been or are being complied with, or in order to obtain evidence in connection with any suspected contravention of or non-compliance with any such provision, term, condition or restriction, an inspector may (a) at all reasonable times enter upon and inspect any licensed or any other premises on which it is suspected (i) a casino or a gambling house is being conducted without the authority of a license; (ii) persons are being allowed to play or participate in any game or to play any gambling machine; or (iii) any gambling machine or any equipment, device, object, book, record, note or other document used or capable of being used in connection with the conducting of a casino or gambling house is being kept by any person and, after having informed the person who is then in charge of the premises of the purpose of his or her visit. Make such investigation and enquiry as he or she may think necessary; 11

16 (b) in any premises referred to in paragraph (a) (i) require the production of any license, certificate of approval or any written permission or authorization that any person is required to hold under this Act; (ii) put to any person present therein such questions as he or she may deem necessary and inspect any activities in connection with the conducting of a casino or gambling house; (iii) examine or inspect any gambling machine, equipment, device, object, book, record, note or document referred to in paragraph (a) and make copies of or extracts from any such book, record, note or document; (c) request any person in charge of any premises referred to in paragraph (a) (i) to point out any equipment, device or object referred to in that paragraph which is in his or her possession or custody or under his or her control; (ii) to produce for the purpose of examination or of making copies or extracts, all books, records, notes or other documents referred to in that paragraph which are in his or her possession or custody or under his or her control. (iii) to provide any information in connection with anything which has been pointed out or produced in terms of subparagraph (i) or (ii); (d) seize and remove any gambling machine, equipment, device, object, book, record, note or other document referred to in that paragraph which in his or her opinion may furnish proof of a contravention of any provision of this Act or leave it on the premises concerned after marking it for the purposes of identification. According to section (2), when performing any function in terms of subsection (1), an inspector may be accompanied by and avail himself or herself of the services of an assistant or interpreter or any member of the Namibian Police Force Offence regarding unlicensed gambling According to Section 44, any person who in or on any premises carries on or allows to be carried on gambling by means of any game or, for the purpose of gambling, keeps or allows to be kept any gambling machines, without such person being (a) (b) the holder of an appropriate license in respect of such premises; or an employee of a person who is the holder of an appropriate license in respect of such premises, shall be guilty of an offence and on conviction be liable to a fine not exceeding N$ or to imprisonment for a period not exceeding five years or to both such fine and such imprisonment Offence regarding unlawful conduction of games According to Section 45, any person who (a) in any casino or gambling house (i) conducts any game or keeps any gambling machine which is not prescribed permitted under this act; or 12

17 (ii) conducts any prescribed game otherwise than in accordance with the rules of such game; or (b) in a gambling house keeps gambling machines in excess of the numbers specified in the license issued in respect of such gambling house, shall be guilty of an offence and on conviction be liable to a fine not exceeding N$ or to imprisonment for a period not exceeding 12 months or to both such fine and such imprisonment. 13

18 CHAPTER FINDINGS Namibia Tourism Board (NTB) Levies collected The audit detected that the levy rate is 1 2% of the revenue collected for the period remained unchanged since inception. A sample of 2% of the files of accommodation businesses was audited from a total of +/-1600 accommodation business operators. From the sample of 33, two could not be analysed, one file could not be obtained at the NTB while the other one had no transactions on file. The table below illustrates the summary of levies paid per financial year as per the thirty one (31) accommodation establishments whose files were reviewed: Table 3 Financial year Amount N$ 2006/ / / Total However it was not possible for the auditors to confirm the correctness of the above-mentioned figures since no supporting documents were provided Limitations by statutory provisions Operations as described in chapter 3 of this report could not be audited due to the limitation by the statutory provisions in the Namibia Tourism Board Act, No 21 of 2000, section 28 of the Act, which reads as follows: (1) A member or an inspector or any other who, in the performance of his or her functions under this Act, acquires any information in relation to the business or affairs of any accommodation establishment or any regulated business or any person who applied for a license in terms of this Act shall not disclose such information to any person, except- (c) For the purpose of the performance of his or her functions under this Act; or (d) When required to do so by any court of law under any law (2) A person who contravenes subsection (1) commits an offence and shall on conviction be liable to a fine not exceeding N$ 4 000,00 or to imprisonment not exceeding two years or to both such fine and such imprisonment. (See Annexure A for further interpretation) 14

19 4.1.2 Ministry of Environment and Tourism Casino and Gambling section The table below illustrates the summary of 6% of levies collected by the MET related to gambling houses per financial year. Table 4 Financial year Amount N$ 2006/ / / Total The auditors could not verify whether the above mentioned collected levies are a true reflection of the revenue generated by the casino and gambling houses, due to the fact that gambling houses are privately owned and the Auditor-General does not have the mandate to access such entities. It was also discovered that reasons for non-payments on levies and licenses are due to the following factors: Some gambling houses do not pay their levies because they were not in operation for a certain period; changing of ownership; the Ministry does not have contact details of the new owner; deceased owners; and the business owned by new operator Inspections According to section 14 (1) of the Casino and Gambling Houses Act, 1994 (No. 32 of 1994), inspectors must see to it that a gambling house license shall not be granted to any person other than a person who conducts an accommodation establishment or carries on a retail liquor business or carries on a bookmarking business but according to the interviews conducted with staff from MET, it was alleged that there are illegal business operators in the Country. Furthermore it was also alleged that illegal gambling activities are ongoing due to a Cabinet moratorium and the MET did not approve new licenses since During the audit it was also discovered that there are no disciplinary measures taken against illegal operators by MET. The Ministry also received complaints from the community members relating to illegal gambling. According to the MET there are no inspectors to inspect gambling houses as it is the Police s responsibility to inspect gambling houses. At the moment the MET only assist the Police with confirmation of licensed business operators registered with them. The Ministry only has four staff members in the gambling section who only conduct inspections when there is a need. 15

20 According to the Ministry, it relies on the word of the business operators when they submit their meter readings on the levy forms to the Ministry at the end of every month, to verify the numbers of gambling machines owned and the amount to be paid as levies on each machine owned. One other method is to send reminder letters regularly, followed by telephonic reminders. Sometimes the Ministry visits the regions to conduct inspections on moving/changing premises of businesses and use these times to visit a few other license holders in that region. MET also finds it difficult to retrieve payments due from operators because some of them moved without notifying the Ministry or died. 16

21 CHAPTER CONCLUSIONS 1. The MET does not carry out inspection on gambling houses in order to verify the numbers and legality of gambling machines owned and the amount to be paid as levies on each machine while there are four staff members employed in the subdivision gambling inspection. The nonexecution of inspection results in inefficiency and ineffectiveness of the operation of the subdivision. 2. The correctness of levies declared to MET and NTB could not be verified by the auditors due to the fact that the amount declared at Inland Revenue is inclusive of all income generated and not specific on the respective levies resulting in the fact that Government might lose revenue. 3. There is no working co-operation between the MET, NTB and MoF regarding levies paid by business operators which may result in the non-verification of the correctness of the declared levies. 4. Although section 29 of the Act allows for revision of levies it was concluded that since inception no revision took place which may result in NTB not being financially sound in the foreseeable future. 5. Statutory provisions for both entities limits any person including the Auditor-General, to have access to information in relation to business or affairs of the license holder which may result in the lost of revenue to the State. This resulted in the auditors not being able to assess whether NTB and MET are effectively and efficiently collecting the levies. 17

22 CHAPTER RECOMMENDATIONS 1. Gambling house inspectors should conduct inspections as required by the Act. 2. MOF, NTB and MET should ensure that there is a working co-operation between them in respect of revenue declared by the business operators. 3. Levy rate should be revised on a regular basis. 4. Statutory provisions should be revised and be amended to empower NTB, MET officials and the Auditor-General to have access to documents and operations of all the business operators. 18

23 ANNEXURE A 19

24 ANNEXURE A 20

25 ANNEXURE A 21

26 ANNEXURE A 22

27 ANNEXURE A 23

28 ANNEXURE A 24