Analysts have said the newly amended capital gains tax will discourage long-term investment on stock market which threatens market growth as investors would weigh other investment options.
The amended tax, according to mid-year budget statement, will now apply on all share disposals despite the length they have been held unlike in the past where shares held for more than one year were being exempted.
When presenting the statement in parliament on Friday, Minister of Finance Economic Planning and Decentralisation Joseph Mwananvekha justified the move saying it ensures fairness because trading in shares has now become a significant income generating activity.
Mwananvekha said: “Previously, capital gains tax on shares held for more than one year was not being applied. However, trading in shares has become a significant income generating activity for companies and individuals.
In an interview, capital market analyst Benedict Nkhoma said if taxation is set too high or implemented without supportive incentives, it may discourage investors from investing on Malawi Stock Exchange (MSE).
Nkhoma said: “If this policy is applied with moderate rates, clear thresholds, protection for small investors, and incentives for long-term and productive investment, it could contribute to a stronger, more transparent and mature capital market.”
In a separate interview, stock market investor Purity Chitaro described the levy as a “bad tax” that must be reconsidered with serious attention as it may suffocate participation in the capital market and discourage both local and foreign investment.
“A capital gains tax on shares is retrogressive to share ownership,” he said.
Meanwhile, financial expert and market analyst Brian Kampanje said the waiver of the capital gains was very attractive to insurers and pension houses, adding that that the move can depress the prices of the shares leading to stagnation in the short to medium term.”
Capital gains are not a separate tax, but are included as part of the entity’s or individual’s total income and taxed at the relevant income tax rate. For companies incorporated in Malawi, the standard rate is 30 percent, while branches of foreign companies face a 35 percent rate.
This change to apply the tax to all share disposals including those held for more than one year is part of broader revenue enhancement measures announced in the recent mid-year budget review statement
