By Staff Reporter

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Business Reporter

THE announcement by the Ministry of Finance on the phasing out of the payroll deduction system for civil servants has brought about mixed reactions, with some stating that this will prejudice them in the timely payment of insurance policies and drive them to unregulated loan sharks, while others are of the opinion that it would reduce debt uptake.

The Finance Ministry announced that it would discontinue payroll deductions for all government employees, with the Payroll Deduction Management System (PDMS) slated to shut down on 30 November 2025.

This is in accordance with a directive issued by government, which informed all government employees and financial institutions that no new voluntary payroll deductions may be loaded as the system operator will not be renewed.

Photos: Ministry of Finance-Namibia

The immediate phasing out of the deduction code has adversely affected local cross-border banks such as Letshego Namibia, which is reported to rely intensively on Deduction at Source (DAS) loans.

Institutional researcher Kara van der Heever, from local wealth management firm Simonis Storm, shared that about 110,607 loans of Letshego Namibia originated from the deduction system, amounting to over N$5 billion and constituting over 95% of the bank’s loans in 2024.

The Namibia Civil Servants Payroll Deduction Forum has equally denounced the move, opining that payroll deductions reduce the risk of missed payments and give employees predictability in budgeting, as deductions happen automatically, ensuring consistency and stability.

The forum further noted that debit orders depend on employees having enough money in their account on collection day, and that this will raise the risk of failed payments, penalties, lapsed policies, and financial stress.

“The abrupt change may also cause short-term strain for many government workers. Payroll deductions are cost-effective and make it possible to support smaller insurance policies, which extend protection to many employees, including lower-income households,” the forum said.

Also providing commentary on the subject, Member of Parliament and Chairperson of Economy, Industry, Public Administration and Planning, Iipumbu Shiimi, said that introduced in 2003, the payroll deduction code management system was designed to facilitate easier access to credit for civil servants by allowing approved micro-lenders to deduct repayments directly from salaries.

“This system significantly reduces the risk of default for lenders, as the employer guarantees repayment—in this case, the government. However, despite safeguards such as a labour act provision that stipulates that no more than one-third of salary may be deducted, several loopholes have led to abuse and over-indebtedness,” Shiimi said.

To address the issue of public servants drowning in debt, Shiimi proposed multiple options, which include tightening the deduction code rules by revising the framework to close identified loopholes and enforcing compliance with all relevant legal frameworks.

He further suggested that access be permitted to the deduction code only for lenders charging reduced interest rates reflective of a near-zero default risk.

Shiimi also advised that the use of the deduction code be restricted to productive loans only, or that it be phased out completely by introducing a responsible phased approach—setting a cut-off date for new loans while allowing existing loans to continue until repayment.