Audit firm applauds 2013/14 budget

Ernst & Young Malawi, a member firm of the global accounting firm Ernst & Young (EY), has applauded the 2013/14 budget for ‘prioritising the sectors’ that could stimulate economic growth.

EY Malawi managing partner Shiraz Yusuf said there is need for the economy, projected to rebound to five percent this year from a paltry 1.8 percent in 2012, to be stimulated to grow.

“Stimulating this economy means that government has got to inspire and achieve the objective of any businesses which is to maximising shareholders’ return. Those returns can only be maximised if the tax regime is appropriate for the businesses,” he said on Friday in Blantyre on the sidelines of the firm’s budget review hours after Finance Minister Ken Lipenga presented the K638.2 billion [about $1.5bn] financial plan.

In the budget, total revenues and grants are expected to amount to K603.4 billion (about $1.2bn) from K460.9 billion in 2012/13 with domestic revenues projected at K363.1 billion (about $907m)—, representing 60 percent of total revenue and grants, while K240.3 billion are donor grants, representing 40 percent of total revenue and grants.

Of the total domestic revenues, tax revenues are projected at K328.1 billion while the non-tax revenues are estimated at K35 billion with grants, on the other hand, expected to jump by 36 percent from K177. 4 billion estimated for 2012/13 financial year to K240.3 billion.

Total expenditure and net lending are projected at K638.2 billion comprising K463.1 billion recurrent expenditure and K175.0 billion development expenditure, with the overall fiscal deficit projected at K34.8 billion to be wholly financed by foreign borrowing.

EY Malawi senior tax manager Misheck Msiska was pleased with the designation of agro-processing, electricity generation and distribution as priority industries which, he said, means businesses in these sectors will not be paying tax for 10 years or at the rate of 15 percent instead of 30 percent for the duration of the whole period.

“Mr. Speaker, Sir, in order to encourage value addition in the agricultural sector, agro-processing shall be designated as a priority industry for purposes of tax holiday as required under the Taxation Act, 11th Schedule. In addition, electricity generation and distribution shall also be designated as a priority industry.

“Mr. Speaker, Sir, I wish to inform this August House that Ministry of Finance is working closely with stakeholders in other sectors where this tax holiday provision can also be applied. It is clear that investors are showing keen interest to invest in these areas if given the right fiscal incentives,” said Lipenga.

Msiska hailed these as positive developments aimed at encouraging industrial development.

He said: “Government is also trying to encourage the tourism industry and has given a lot of incentives for agro-processing to encourage businesses to go into agro-processing to encourage domestic production for export and also to create employment.

“On electricity generation, I think they want to increase capacity for generation and distribution. In those days, duty was just available to Escom but this time any investor that would want to come into electricity generation can benefit from these tax incentives which is very good considering that power is very critical to development.” Government has also increased the pay as you earn (Paye) zero percent threshold to K20 000 from K15 000 with the next K5 000 still taxed at 15 percent and excess at 30 percent to mitigate the impact of devaluation and inflationary effects.