Chakwera faulted on ‘tax breaks’

Malawi Congress Party (MCP) president Lazarus Chakwera seems to have got his facts wrong when he accused government of offering “tax breaks” to local banks he blamed for being “complicit” to illegal activities.

In his reponse to the K742.7 billion 2014/15 national budget on Wednesday, Chakwera, who is also leader of opposition in Parliament, also reprimanded banks for registering “unconscionable profit margins on the backs of working Malawians whose purchasing power is steadily being bled to death”.

His criticism is based on a tax measure announced by Minister of Finance, Economic Planning and Development Goodall Gondwe, removing Customs Procedure Code (CPC) 487 which allowed duty-free importation of automated teller machines (ATMs), point of sale devices and mobile banking vans.

The minister said government believes implementation of this tax measure over the past two years has supported the banking sector enough and enabled the expansion of banking services.

Said Chakwera in his speech: “We are being asked to approve a budget that offers tax breaks for corporations and banks, the same banks that were previously complicit in lending money to government illegally; the same banks that were recently complicit in facilitating illegal payouts to Cashgate thieves; the same banks that regularly crush the working man with extravagant interest rates; the same banks that rob the working class through multiple hidden service fees.”

But, according to the Malawi Revenue Authority (MRA), a tax expert and the Bankers Association of Malawi (BAM), Chakwera’s blame on the banks appears to be misplaced.

MRA said the deletion of CPC 487 means that commercial banks will be paying 10 percent import excise and 16.5 percent import value added tax (VAT) on point of sale (PoS) devices and 16.5 percent import VAT on ATM and mobile banking vans.

Misheck Msiska, tax director at EY Malawi, a professional audit, business advisory and services firm, yesterday said the cost of ATMs, PoS devices and mobile banking vans will increase for the banks since the import duties will be part of the cost of the items.

Said Msiska: “Considering that banks are VAT exempt, the import VAT, which is part of the import duties, is a direct cost of the input since it cannot be claimed. It is not deductible against the output VAT.”

He said the cost of commissions and fees that banks charge are likely to increase to recoup the increase in inputs and the customer will ultimately pay.

BAM president Misheck Esau is also worried that the withdrawal of the tax waiver will likely slow down the financial inclusion, which has jumped 14 percent within five years to 54 percent, according to a latest Finscope study.

“We still have a long way to go in as far as bringing a large part of the population into the financial sector,” said Esau who is also managing director for CDH Investment Bank.

Without wanting to criticise Chakwera, political analyst Joseph Chunga said yesterday Malawians’ perception of the banks is that their charges do not make logical sense, stressing this could have been the thinking when he was making a statement in Parliament.

Chakwera was reported to be in Parliament when we called to seek his comment yesterday.