Government defends new tax on profits
Principal Secretary for Economic Planning and Development in the Ministry of Finance and Economic Affairs Jacob Mazalale has defended the government’s decision to impose a 10 percent tax on abnormal profits.
The 10 percent tax on profits above K10 billion was introduced in the 2023/24 fiscal year to help the government raise resources to finance the reconstruction of infrastructure damaged by Cyclone Freddy. It initially only applied to banks but will now extend to all sectors.
The revision has since sparked concerns from the private sector that it would deter investment.
In an interview on Tuesday, Mazalale allayed the concerns, saying the government tax from the banking sector to all sectors will ensure an even and equitable distribution of resources in the economy.
He said: “Our intention is that where people are making a little bit of profit, let us redistribute the resources so that they are shared more equitably and fairly. We need to remember that the government aspires to create an inclusive society where everyone is being lifted as we grow.”
The remarks follow concerns from the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) that the government did not take into consideration the investment that the businesses make to turn a K10 billion profit.
In a separate interview, MCCCI deputy president Boyd Luwe said K10 billion profit would not be considered supernormal in some industries because of the value of the investment that would be required to realise that profit.
He said: “So over the last 18 months, the kwacha has lost almost 82 percent. If you factor that into what K10 billion translates to in US dollars, it’s an amount that is just under $4 million. This move by the Government to extend supernormal profits into the entire private sector will be a disincentive for serious investors in the country to come in.”
He, thus, urged the government to look at other areas of generating money to avoid deterring investors.
The extension of the 10 percent tax on supernormal profits will come into effect on April 1 2024.
