Inside the new tax measures

Minister of Finance and  Economic Affairs Sosten Gwengwe yesterday outlined new tax measures he said are designed to help broaden the tax base and promote domestic and foreign investment across sectors.

The minister presented the K3.87 trillion budget in Parliament in Lilongwe which contains the tax measures, chief among them being the reduction of tax on airtime and data from 10 percent to 7.5 percent.

Gwengwe also announced adoption of the proposal to use specific taxes for second hand motor vehicles in response to complaints from importers about Malawi Revenue Authority (MRA) unilaterally revising upwards the value of the.

“To overcome this challenge, government has adopted the proposal to use specific taxes for second hand motor vehicles,” he told parliamentarians.

According to Gwengwe, the targeted motor vehicles are those manufactured between the years 2000 and 2020 while those outside these years will continue to be cleared using using their transaction value.

He said: “The MRA will publish a document showing specific taxes to be applied based on the motor vehicle’s make, model, year of make, and engine size. For example, if you are importing a 2014 Toyota Corolla with engine capacity of 1.5 litres, you will be able to see the tax payable clearly indicated, say for argument’s sake, K4 million.

“This specific tax will be non-negotiable, thereby removing room for corruption or undervaluation or indeed MRA uplifting the value of the motor vehicles. An importer will be buying a vehicle fully aware of what duty it will attract by simply referring to the matrix that MRA will release soon.”

In an effort to encourage participation in Mega farms project, government will incentivise Malawians who invest in large-scale farming for commercial purposes with a tax holiday of up to 10 years and duty-free importation of various items including machinery and building materials.

Government will also introduce tax holidays for players in the energy generation business, based on the amount of energy generated and not the amount of investment made.

On the other hand, government has moved to encourage production of electric vehicles by incentivising importation of materials used for production of the vehicles in Malawi.

In the same regard, government has removed taxes on the importation of electric motor vehicles and electrical vehicle charging equipment.

To address the problem of smuggling and the production of fake products, government will introduce electronic tax stamps on still water, lotion and glycerine.

Government has also exempted wheat flour from value added tax (VAT) to counter rampant smuggling of wheat flour in the country.

Said Gwengwe: “There is rampant smuggling of wheat flour in the country, whereby smugglers are evading VAT which the local producers charge in accordance with the law. This has inflationary impact on the price and makes them uncompetitive on the market.”

Religious organisations who own and run credible schools and hospital facilities will also be happy as Gwengwe announced that government will allow them to import duty-free, every five years, two motor vehicles designed for the transportation of persons, if the organisation has at least five health facilities or five education institutions.

But as a way of expanding the tax base, government is introducing a standard rate of VAT on exercise books with hard covers, rye flour, cereal flour, groats and meal of wheat.

Treasury will further introduce the same to rolled or flaked grains of oats or other cereals, other worked grains of oats, whole rolled flaked, roasted malt and malt roasted of barley and sorghum.

Institute of Charted Accountants in Malawi (Icam) has since described the tax measures as ‘mostly progressive.’

Icam acting chief executive officer Charles Chimpeni in an interview yesterday observed that the budget through the measures has strived to strike a balance between the needs of the people and aspirations of the Malawi 2063.

“We see the taxes such as the reduction of tax on airtime and data going a long way in promoting use of ICT services in Malawi which is key in the Malawi 2063,” he said.