The Centre for Social Concern (CfSC) says in the face of food insecurity, currency depreciation, fuel price volatility and high unemployment, households have less resilience to absorb new taxes.
The sentiments follow the announcement of increased value added tax (VAT), tightened corporate taxation and restructured Pay As You Earn (Paye) by Minister of Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha in a bid to contain a widening fiscal deficit.
However, in a written response on Friday, CfSC economic governance officer Agness Nyirongo observed that while Government needs domestic revenue to fund public services, the timing and structure of these taxes matter as consumption taxes such as VAT and transaction taxes hit the poorest the hardest.
She said: “For Malawi to balance revenue mobilisation with social protection, tax reforms must be accompanied by deliberate efforts to lower inflation, stabilise the kwacha, strengthen food security and create jobs.
“Without such interventions, ordinary Malawians—especially low-income earners—will continue to face intensified economic hardship even as Government seeks to build its revenue base.”
Following the announcement, workers earning K170 000 or less will not pay income tax following a change in the zero-rate band from K150 000.
The 25 percent tax band has been removed with incomes between K170 000 and K1.57 million now attracting 30 percent, those up to K10 million will be taxed at 35 percent, and a new 40 percent rate applies beyond that threshold.
Meanwhile, VAT has risen from 16.5 to 17.5 percent.
Government has also introduced two percent levy on motor vehicle insurance with proceeds ring-fenced to provide additional financing for the Ministry of Health.
Additionally, Treasury has introduced 0.05 percent bank transfer levy to be applied on all bank transfers and another 0.05 percent mobile money levy to be applied on mobile money transfers of above K100 000 to be paid by the sender.
Said Nyirongo: “The cost of a basic food basket for an average Malawian household has risen sharply and the additional K20 000 cushion provided by the new tax-free threshold is quickly consumed by higher market prices.
“Salaries that previously fell within the 25 percent bracket may now be taxed at 30 percent, reducing the disposable income for civil servants, private sector employees and SMEs.”
In his 2025/26 Mid-Year Budget Statement on Friday, Mwanamvekha unveiled a fiscal picture marked by widening deficits, revenue shortfalls and intensifying spending pressures that have forced government to revise the national budget upwards by K512.6 billion from K8.077 trillion to K8.589 trillion.
Projected expenditure for the second half of the 2025/26 fiscal year, resulting in K4.169 trillion while total revenue and grants are projected at K3.078 trillion giving a fiscal deficit of K1.091 trillion.
Of this, tax revenue is estimated at K3.323 trillion and will increase due to proposed changes to the Taxation Act, Value Added Tax (effective immediately after gazetting), and Customs and Excise measures (effective at midnight on Friday), according to EY 2025/26 Mid-Year Budget Review Analysis.
Said Mwanamvekha: “To strengthen revenue mobilisation and ensure that the fiscal deficit is reduced in the medium term, government has reviewed the VAT rate. In doing so, government took into consideration VAT rates in other countries such as Morocco and Madagascar which is at 20 percent and Tanzania, which is at 18 percent.”
