Donors back health taxes

Health sector donors have asked the Malawi Government to devise creative ways of improving the taxation system and clear inefficiencies to finance the sector currently suffocating under sharp funding cuts.

The donors’ calls come as government has proposed a set of reforms for the health sector, among them the establishment of a health fund where it proposes visa fees, health-risk taxes on alcohol and cigarettes, health value-added tax (VAT), corporate health tax and fuel health levy to get additional revenue for the sector.

These proposed tax measures are expected to be sent to Cabinet before a bill on health is drafted and presented to Parliament for approval consideration.

The bill would also propose the appointment of a board and management team for the fund.

Malawi is facing a $1.3 billion (about K600 billion) deficit in the health sector between 2014 and 2016. The figure—roughly 30 percent of the country’s gross domestic product (GDP)—has formed the basis for the introduction of a health fund.

Speaking when the Ministry of Health (MoH) updated stakeholders on progress of reforms, Eugene Nyarko, chairperson of the health donor group and country director for World Health Organisation (WHO), said many countries around the world have found creative ways of harnessing domestic resources to finance the health sector and avoid over-reliance on donors.

He said: “Government needs to look at more creative ways of banning or reducing illicit tax evasions. Look at creative taxation systems that will bring in the income that government requires to finance the health sector. Malawi cannot excuse itself that we are special case. The same efforts that other governments have done, we can do the same.”

Nyarko said donors should only come in to complement government’s efforts of revenue collection through expansion and improvement of the tax base.

On donors financing the health sector, Nyarko said diverting budgetary support to other aid delivery systems was a temporary measure put in place because of notable inefficiencies in the sector.

Vice-President Saulos Chilima, who chairs the Public Service Reforms Commission (PSRC), said it was not a secret that the health sector was facing many challenges, among them the silent threat of rapid population growth which has exerted pressure on these inadequate public resources.

“The goal of the Malawi Government, in line with the Sustainable Development Goals, is to ensure universal health coverage. But to achieve this, we will need concerted aggressive efforts like we are doing as well as to increase our domestic revenue base from which we can finance health care,” he said.

Chilima, however, said much as the ongoing economic reforms would help in this area, government should seriously explore ways of ensuring that everyone with the ability to pay contributes to financing of the Essential Health Package while keeping out-of-pocket payments as low as possible.

The forum was attended by donors, government officials, health rights activists and civil society organisations (CSOs).

Here are the proposed taxes:

•   Earmarked health risk tax charged on tobacco products (10 to 30%)
•  Earmarked health risk tax charged on alcohol (10 to 30%)
•  Extractive industries health tax (1 to 5%)
•  Airtime health levy (1 to 3%)
•  Visa fees on incoming travellers­—­outside Sadc and Comesa regions ($20-60 per passport holder)
•  Fuel health levy (from 1 to 5%)
•  Corporate health tax (from 1 to 3%)
•  Health VAT (from 1 to 3%)

Annual earnings paid by employee and employer to private health insurance schemes (from 10 to 30%)

• Other key facts:
•  The concept paper indicates that if a 10-percent levy on alcohol and cigarettes, $20 visa fees, one percent each on fuel levy, mining, airtime, VAT and corporate tax were to be imposed, government would collect K112 billion if implemented over 10 years, but could be higher with increased percentage taxes levied.
• The health fund would also source funds through loans approved by Parliament, investments made by or on behalf of the Malawi Health Fund and donations from donors and foundations.
•  All earmarked tax-based collections such as on tobacco, alcohol, and corporate would be collected by the Ministry of Finance while the Department of Immigration would collect visa fees and remit to the Fund.
• The Health Fund will be a Statutory Corporation with board members and a chief executive officer.
• The concept paper concedes that the proposals are not without flaws. The proposed mechanisms would increase cost of living or business in short and medium term.
•  But the advantage, it explains, is that consumption taxes on alcohol and cigarettes could capture those that do not pay tax under the formal system, especially the informal sector. n