With taxes scheduled to contribute K1.369 trillion to the K1.7 trilllion 2019/20 national budget, government has announced a number of measures aimed at maximising revenue while easing a bit of pressure on the ‘taxed’ population.
Making the announcement in Parliament, Minister of Finance Joseph Mwanamvekha said the Customs and Excise Tax measures are effective from midnight today (September 9) while the Income Tax and Value Added Tax (VAT) measures will be effective when the appropriate Amendment Bills are passed by Parliament.
Employer/employee related taxes
Government has increased the Pay As You Earn (PAYE) tax free bracket to MK45,000 from MK35,000 per month, in an attempt to increase disposable personal income of Malawians.
Government has also listened to pleas from employee representatives for an increase in the minimum wage from K25,012 to K35,000 per month.
While the announcement of the increase in the tax-free bracket attracted applause from Parliamentarians, that of the increase in the minimum wage got a muted response as it means domestic employees and other menial workers will now demand more.
Employers of people with disabilities will get a 50 percent deductible allowance based on the basic
salary of the employed persons with disability.
Energy tax measures
To calls that alternative sources of energy to hydro electricity were expensive, government announced a removal of Customs Duty and Excise Tax on gas cylinders.
“Government laments the wanton cutting of trees for fuel wood as this is negatively contributing towards adverse impact of climate change,” said Mwanamvekha.
VAT on solar panels, solar batteries, solar accumulators, solar inverters, solar chargers, solar lumps, solar bulbs and energy efficient bulbs, liquefied petroleum gas and gas cylinders, and wood cook stoves has also been removed.
“This is expected to empower Malawians to purchase these clean energy products at affordable prices,” hoped Mwanamvekha.
But carbon tax ranging from K4,000.00 to K11,500.00 has now been imposed on vehicles to fight climate change.
“In terms of application, locally registered motor vehicles will be exempted at first registration and payments for locally registered motor vehicles will be done annually. Foreign registered motor vehicles will require payment of the Carbon Tax at the port of entry,” said Mwanamvekha.
Encouraging local industry
To quell some of Malawi's huge appetite for imports, government has introduced a surcharge on some imported goods that have local substitutes such as; vegetables, fruits, sugar, cooking oil.
Government has also hearkened to the cry of Castel Malawi; reducing excise taxes on malt beer to 65 percent from 90 percent while increasing charges on spirits from 95 percent to 110 percent.
Castel Malawi has been partly blaming this tax measure on its dwindling revenue leading to its recent downsizing drive.
Customs Duty has been removed on flat iron sheets, a key raw material for the production of the iron sheets locally.
"Government will continue to promote the construction of decent housing among the rural masses and ensure that Malawians are able to access iron sheets at affordable prices," said Mwanamvekha.
With fish stocks dwindling in Malawi’s lakes and rivers, Mwanamvekha announced measures to encourage fish farming by offering duty free clearance of equipment and items that focus on the promotion of aquaculture in the country.
Transport sector tax measures
Government has also removed Customs Duty on motor cycles of cylinder capacity of not more than 100cc commonly called Zobanduka to promote rural transportation.
“I therefore implore motorists to ensure that they get their motor cycles properly registered with relevant authorities including MRA, Police and Road Traffic Directorate so that only registered motor cycles ply on our roads to enhance safety,” he said.
But a carbon tax on motor vehicles alluded to earlier has been introduced.
Some withholding tax measures
The number of people paying their taxes is said to be low as those employed are the ones largely targeted. Government has thus introduced a 1.0 percent Withholding Tax on non-bank mobile money transactions based on the transaction amount.
“This measure aims at ensuring that a large number of the citizenry are motivated to contribute toward national building through payment of taxes and ensure that Government has scope to improve service delivery,” said Mwanamvekha.
It is not clear how money that passes through the mobile money system but already went through the banking system will be handled.
There have also been withholding tax rate increases for technical fees to 20 percent from 10 percent; on rental income to 20 percent from 15 percent which is likely to trigger increases in the house rentals.
Malawians should also expect higher user fees when accessing some government services among them passports as Mwanamvekha said the services were too low and had not been revised for a long time.
Government has been strained to generate local resources to finance its expenditure following the withdrawal of budgetary support from some key donors who used to account for up to 60 percent of the financing.