Malawi to broaden tax base in 2014/15 budget

Malawians should brace for tough times ahead, especially during the implementation of the 2014/15 National Budget, as government plans to broaden tax base by, among other things, hiking user fees, fines and levies collected by government ministries and departments.

Secretary to Treasury (ST) Newby Kumwembe told The Nation in Lilongwe that the focus of tax and non-tax policy reforms in the 2014/15 budget will be to broaden the tax base, encourage domestic production through the promotion of value addition, encourage investment and exports through various tax policy instruments while enhancing revenue yield.

Said Kumwembe: “Government intends to review some of the user fees, fine and levies by government ministries and departments to ensure that prices of government services reflect the cost providing those services.”

Plans to broaden tax base come at a time when the new government is facing a huge fiscal gap for the 2014/15 budget as resource envelop falls significantly short of the planned expenditures as major donors tenaciously grip their budget support to Malawi.

Malawi needs adequate domestic revenue to finance critical expenditure on social services such as health and education and narrow the budget deficit—a situation when government spending is greater than tax revenues—in the process.

“In addition, government will undertake revenue administration reforms with a view to improve efficiency in revenue collection,” added Kumwembe.

In the 2013/14 budget, government increased the zero percent threshold for pay as you earn (Paye) from K15 000 (about $40) to K 20 000 (about $50) and the next K5 000 (about $13) taxed at 15 percent whilst the excess is taxed at 30 percent.

But economic commentators have argued that the prevailing tax free band is currently not matching the cost of living, biting most average and low income earners.

The ST said in order to adequately finance the 2014/15 budget, government will leverage the use of technology to enhance efficiency in tax and customs collection and administration without raising associated rates.

He cited initiatives that have been introduced such as the use of Electronic Fiscal Devices (EFD’s) for value added tax (Vat) accounting which he said will reduce tax evasion.

“Let me mention here that over the years, the main challenges in VAT administration has been tax evasion through non-issuance of tax invoices. I am sure some of you have been asked before whether you want a receipt or not when buying goods in some shops. The EFD’s will curb this malpractice,” he added.

Kumwembe said government is also aware that some operators in the private sector have reservations over the same introduction of EFD’s, but assured that the implementation of the initiative is being monitored closely.

Economics Association of Malawi (Ecama) president Henry Kachaje said that there is need to increase tax base through targeting the informal sector, enhancing withholding tax from landlords and supporting the growth of private sector especially small and medium enterprises (SMEs).