NCIC urges tax-relief
The National Construction Industry Council (NCIC) has urged the government to create a conducive tax environment to protect the construction sector as production costs in the sector soar.
The latest NCIC cost indices report published on the council’s website shows that government prices of construction inputs and outputs in different categories went up from the first to the fourth-quarter of 2023-2024.
Earthworks, particularly excavations, have seen the most dramatic price hikes, with some categories as excavations between 250mm and 500mm rose by a whopping 48.9 percent during the period under review.
Concrete costs have exhibited mixed trends, with lower-class concrete showing a slight decrease while higher-class concrete has become more expensive. Roofing materials have also experienced consistent price increases,
The NCIC’s analysis of input price indices reveals that the annual growth rate for civil engineering input prices reached 18.3 percent in the fourth-quarter of the fiscal year, with quarter-on-quarter growth at 8.7 percent.
Building construction input prices saw an even more alarming rise, reaching 31.2 percent during the same period. The quarter-on-quarter growth rate, comparing Q4 of 2023-2024 to Q3 of 2023-2024, was 8.9 percent.
The report attributes much of this cost escalation to the depreciation of the Malawian kwacha against the US dollar. This currency realignment implemented by the government in November last year has led to higher prices for imported construction materials and has also impacted domestic production costs.
The NCIC’s findings have significant implications for the construction industry in Malawi. The rising costs could make it more challenging for developers, contractors, and homeowners to undertake projects, potentially slowing down economic growth and development.
Amid the rising production costs, NCIC spokesperson Lyford Gideon has urged the government to consider introducing tax exemption to bring down production costs.
“VAT exemptions would help mitigate the rising costs of production materials,” he said. “We have been in discussion with MRA [Malawi Revenue Authority] to have favourable tax measures. The discussions are underway and we are optimistic we will get a positive result.”
The request contrasts with the government proposal to remove VAT exemptions on building materials in line with a four-year Extended Credit Facility (ECF) the government signed with the International Monetary Fund (IMF) in November last year.
When it was put to him that the government is planning to remove the VAT exemptions, he said favourable tax measures for the construction sector would create opportunities for job creation and greater economic activity, which would generate more revenue for the government.
“In the meantime, we are working with local suppliers to produce construction materials as part of our wider import-substitution strategy,” he explained. “That should help us mitigate the costs associated with the importing of building and construction materials.”
In an earlier interview, economics analyst and researcher Exley Silumbu urged the government to conduct a comprehensive empirical study to make an informed and evidence-based decision before removing the VAT exemptions.
“If the government implemented the exemptions to boost activity in the construction sector and raise its contribution to the economy, then that has to be quantified,” he said. “And then, it has to be checked against the potential gains the government will get if they remove the exemption.”
Figures from the Reserve Bank of Malawi show that the construction sector’s contribution to the economy has risen steadily from 3.05 percent in 2017 that year to 3.6 percent in 2024.
