Bankers call for vat rate reduction
The Bankers Association of Malawi (BAM) has urged Treasury to reduce value added tax (VAT) rate from 16.5 percent to 15 percent to encourage consumer spending to stimulate the economy and businesses.
But Consumers Association of Malawi (Cama) executive director John Kapito argued in an interview yesterday that reducing rate of VAT, a consumption tax levied on goods and services imported into or supplied in the country, by 1.5 percentage points could have no significant impact on consumers.
Speaking in an interview on the sidelines of a presentation on their proposal to the 2024/25 Pre Budget Consultation on Monday in Blantyre, BAM chief operations officer Chifundo Mmaniwa said the cut in VAT rate could help, especially now when the economy is going through a bad patch.
He said: “When it was introduced, VAT was at 17.5 percent, then it was reduced to 16.5 percent. So, what we are suggesting is, why can’t we reduce it to 15 percent?
“These are hard times, which means if it goes down to 15 percent, it will stimulate the economy. People will still have something in their pockets.”
Mmaniwa said while direct budget support has resumed which will help Treasury in resource mobilisation, to compensate for the loss, government can look at other ways of broadening the tax base.
The proposal to reduce the VAT rate comes at a time Treasury conceded in its 2021/26 Domestic Revenue Mobilisation Strategy inefficiencies in the country’s VAT system which revealed that Malawi is only collecting a meagre 14 percent of VAT potential revenue.
The strategy also shows that if gross collections from VAT could be discounted for VAT refunds, the actual collections from such a tax component could actually be much lower.
But Kapito observed that while it is always believed that reducing taxes can stimulate the economy, over the years, tax reductions on key products and services has had no impact on consumers’ welfare.
He said: “VAT is paid by consumers and the industry simply collects and the current drivers that are failing to stimulate the economy is not just VAT, but the high prices which are as a result of industry inefficiencies such as high production costs.”
Kapito said while consumers are not happy with the high VAT, government needs to come up with realistic reductions that will directly help consumers as VAT is a consumer and not an industry tax.
In his reaction, Minister of Finance and Economic Affairs Simplex Chithyola Banda said all the submissions by various interest groups will be looked into and be responded to at an appropriate time.
He said: “What is most important is that all the comments and feedback will inform us to come up with a good budget.”
VAT is levied on final consumption of goods and services and was first known as surtax, which was introduced under the Customs and Excise (Tariffs) Order of 1989.
As at September 2023, VAT trails pay as you earn in terms of contribution to the tax kitty.
In neighbouring countries, VAT in South Africa is levied at 15 percent, in Tanzania at 18 percent, Zambia at 16 percent, Zimbabwe at 15 percent and Mozambique at 16 percent.
