CfSC decries tax regime
Centre for Social Concern (CfSC) has said Malawi Government should have restored the purchasing power of the middle-class to stimulate economic growth through a favourable tax system.
In a press statement release, recently, the Lilongwe faith-based organisation has noted that government should have restored purchasing power, consequently prompting domestic consumption and thereby mitigating the impact of the market crisis the economy has witnessed since 2011.
“CfSC understands that the higher the non-taxable income rate, the higher potential income tax loss that government might suffer. However, by applying a higher non-taxable income rate, the government would have been able to push for more purchasing power in our economy, thereby regaining the revenue from indirect taxes such as VAT,” reads the statement in part.
CfSC further acknowledges that tax is often used as an instrument to reduce income inequality. The centre notes that tax can be designed to directly reduce post-tax incomes among tax payers or to impose taxes to raise revenues, which are then channelled to fund programmes designed to narrow income differences.It added that the challenge however, is to have a tax system that raises enough revenue while maintaining some measure of progressivity to narrow income inequalities.
But the International Monetary Fund (IMF) in Malawi’s recent country report notes that the country’s domestic revenue effort is high compared to other countries in sub-Saharan Africa although the main tax rates are in line with those in neighbouring countries. In the report IMF appreciates that there seems to be scope to increase revenue efficiencies in Malawi.
“The authorities are making progress in their efforts to strengthen revenue administration and broaden the tax base. Specific measures include the introduction of electronic fiscal devices to enhance VAT collection, and the deployment of computerised cargo scanners to improve customs administration,” reads the report in part.
CfSC notes that the proposed budget has substantial tax incentives to tourism sector, the construction industry, mining and exploration industry. However, it is worried that some of the players that have been awarded these incentives are the ones that have the greater ability to pay tax than the ordinary.
In the 2013/14 Budget Statement, Malawi’s Minister of Finance Ken Lipenga cautioned those that will enjoy the tax holidays to ensure that they deliver the desired output.
“Government deprives itself from revenues from corporate taxes by letting investors benefit from tax holidays. It is, therefore, imperative for all investors that shall benefit under this provision to ensure that they remain committed to deliver the desired outputs such as; production for export, value addition, employment creation and generation of forex for the economy. In view of this, Government will closely monitor performance and is at liberty to withdraw this incentive where there is evidence of abuse or under-performance depending on the agreed benchmarks,” said Lipenga.
