They say tough times never last, but tough people do. This phrase, however, feels like a cruel joke, a meaningless mantra that will fail to motivate Malawians once the government’s proposed tax measures take effect.
The proposed tax measures, which Finance Minister Joseph Mwanamvekha announced in Parliament, aimed at “cushioning” low-income earners, have instead ironically stirred widespread panic among the very people they claim to protect.
While the zero Pay As You Earn (Paye) bracket will modestly increase from K150 000 to K170 000, this slight relief is immediately and ruthlessly swallowed by consumption taxes that hit the poor hardest.
The revised Paye structure establishes a new, steeper tax cliff: those earning beyond the K170 000 threshold up to K1.57 million will be taxed at 30 percent; up to K10 million at 35 percent; and beyond K10 million at 40 percent.
For Rumphi-based primary school teacher Elson Mwawa, the proposed tax measures offer no hope amid the high cost of living―anticipated to further worsen with the tax reforms.
“I feel weakened and discouraged,” he said.
Mwawa, who is on Grade L, which is the lowest grade for a primary school teacher in the public service, fears his income will shrink further.
Our findings during the week established that the gross salary for public primary school teachers on Grade L ranges between K302 547 and K310 567.
This translates to an annual salary of between K3.630 million and K3.726 million.
On Grade L3, Mwawa’s monthly gross salary is K305 755. With the projected 30 percent Paye, he is going to be taxed K40 726.50. With a five percent pension, he will be deducted K15 287.75.
This means he will face a monthly deduction of K56 014.25. Mwawa’s net salary will thus be K249 740.75.
The projected net salary is way below the current cost of living which the Centre for Social Concern (CfSC) estimates at K945 029 per month for an average household.
in the civil service
This is why Mwawa, who is newly-wed with a child on the way, fears his struggles will worsen with the new tax measures.
He said: “My fears are that I
will struggle so much more than at present.”
Apart from value added tax (VAT) set to jump from 16.5 percent to 17.5 percent, what compounds the situation is government’s immediate directive to Malawi Revenue Authority (MRA) to enforce the collection of rental income tax on residential property.
The VAT adjustment will thus result in an increase in prices of goods and services.
And this is what bothers most Mathews Watson, a security guard from Mbayani Township, who is paid way much lower than Mwawa.
“I receive K70 000 and I consider it as being better off because most of my friends get as less as K40 000,” said Watson, who is married and has a two-year-old daughter.
Basic necessities, including food, costs him roughly K40 000 despite having a small family. He remains with K10 000―at times.
To complement his monthly income, he does piece work. But in unfortunate situations, he fails to find piece works for days.
Looking ahead, Watson said if life gets hard, he will have no option but to go back to his village in Mdeka.
But middle-income earners are neither spared from the worries.
“What worries me most is that if landlords will start paying taxes, my rent will shoot up,” said Lazarus Magwaya, who works as a tour guide operator in Lilongwe.
“This simply means I will be squeezed from all angles, left with nowhere to breathe.”
Magwaya, who earns around K455 000 per month, said the situation will mean he will not have savings as he used to as his income will shrink while at the same time he will be struggling to keep his family well supported.
And for Zomba-based Saulos Nankwawa, a welder, he fears prices
of goods and services escalation will force him to relocate to the village.
He said: “I have been struggling for some time now. So, if the prices go up, it means the struggles will worsen.”
The worries expressed by the four mirror the situation with other households, who are wary of the tax measures which social and economic commentators say represent an added layer of financial pressure in an already difficult economic environment.
CfSC economic governance officer Agnes Nyirongo said in an interview on Wednesday that the adjustments to the tax system will have far-reaching consequences on disposable incomes, household welfare and Malawi’s overall economic stability.
She said while authorities argue that such tax reforms are aimed at improving revenue mobilisation and sustaining essential public services, the reality for many Malawians is far more complex and sobering.
For instance, she cited the adjustment of the Pay As You Earn tax-free bracket which she said appears to be a positive development for low-income earners, yet the benefit is quickly overshadowed by the fact that all earnings beyond will be subjected to higher tax rates.
“This means that many middle-income earners—teachers, nurses, police officers, junior accountants and other salaried workers—will see a larger portion of their income going to taxes,” said Nyirongo.
“At a time when wages have stagnated despite rapid inflation, these households may experience a notable reduction in purchasing power, further squeezing their already tight budgets.”
Nyirongo said what is even more concerning is the increase in VAT, which will affect everyone regardless of employment or income levels.
She said as VAT is applied to most goods and services, even a slight increase triggers a chain reaction of price adjustments across the economy.
She said: “This includes basic necessities such as food, transport, clothing, school materials, fuel and cooking oil. For low-income households, who already spend a larger proportion of their income on essentials, the rise in VAT has a deeply regressive effect.
“It essentially raises the cost of living further at a time when many families are already resorting to survival strategies such as reducing meal frequency, withdrawing children from school or abandoning essential healthcare.”
While pointing out that introduction of taxation on rental income is a progressive policy in principle, Nyirongo said it may bring unintended ripple effects.
She said without proper regulation, some landlords may shift the tax burden onto tenants by increasing rental fees, subsequently pushing more households into severe financial stress.
In an interview last week, Consumers Association of Malawi executive director John Kapito said the tax measures will be punitive to ordinary Malawians who are already struggling.
