New tax rates shrink salaries

Malawian workers have woken up to the reality that new Pay As You Earn (Paye) brackets touted as designed to increase their disposable incomes have, in fact, eaten into their take-home pay.

The new tax schedule Minister of Finance and Economic Affairs Sosten Gwengwe announced in his 2022/23 National Budget Statement came into effect on April 1 and maintained the zero-rated tax band at K100 000, but revised other tax brackets with incomes between K100 001 and K330 000 taxed at 25 percent.

Under the new schedule, workers earning between K330 001 and K3 million are now subject to 30 percent Paye while those earning between K3 million and K6 million pay 35 percent tax and those above K6 million pay 40 percent.

With April salaries being taxed at the new rates, most workers paid so far have cried foul after observing that their earnings have dwindled compared to the previous month due to the new measures.

In an interview on Tueday, Malawi Congress of Trade Union (MCTU) secretary general Madalitso Njolomole described the implementation of the new measures as poor timing on the part of the government, saying the revised Paye has come at a time when people are already struggling with the high cost of living.

He said most workers in the middle income bracket who earn an average of K330 000 and above are the worst hit as they have had their salaries drastically reduced.

Njolomole said: “We are appealing to government to reconsider this measure because it truly is not practical. We, the employees, are the biggest losers in all this as we are heavily burdened. The economic realities are already not corresponding with our incomes and this is another burden we have to bear.”

In an interview on Tuesday, taxation analyst Misheck Msiska described the new bracket as an unfair situation that employees have to face.

He said: “Government indicated that it is trying to narrow the rich and poor gap, but we all know that the rich in Malawi are not salaried.

“Already, people in employment bear the biggest tax burden and this, therefore, is an unjust move that government had to take.”

Msiska, who is managing director of MM Tax Advisory Services, argued that a good tax system should strive to level the ground and strive for fairness.

“But the new structure is not practical as it does not reflect the situation in Malawi,” he said.

Weighing in, Emmanuel Kaluluma of EK Tax Consultants said the situation should compel employers to revise salaries.

“Presently, companies are paying less to the employers. What we see as a solution to this is that employees should consider starting to pay their workers reasonably,” he said.

Employers’ Consultative Association of Malawi (Ecam) also said it is concerned with Treasury’s move to revise the Paye regime.

In its 2022/23 National Budget response statement, Ecam said the revision will not cushion the middle-income earners from effects of the increased cost of living in the country.

The association said the tax regime would not enable many working Malawians to attain a decent standard of living.

Reads the Ecam statement: “Thus, Malawi will not reap the long-term benefits of increased expenditure to spur productivity, and job creation that have the effect of increasing the tax base.”

But Gwengwe justified the revision.

“This is meant to improve the progressivity of the Paye system and also ensure that government continues to collect realistic revenues from the tax line,” he told Parliament in Lilongwe when presenting the 2022/23 National Budget Statement.

However, presently, the cost of living in the country has continued to rise with latest figures showing the living standards rose by average 5.45 percent to K255 593 last month, largely propelled by a rise in food prices.

The March 2022 Centre for Social Concern (CfSC) Basic Needs Basket (BNB) report shows that in the period under review, the food basket which includes maize, milling and cooking oil, among other items, rose to an average of K147 134.

On the other hand, non-food basket which comprises housing, electricity and water, among other items, rose to an average of K107 985 for a household of six members.

Inflation, on the other hand also continues to bite hard with fresh data showing it rose to14.1 percent in March on account of rising food prices.

National Statistical Office (NSO) published last week showed that in comparison to the previous month, inflation, the rate of the increase in prices over a given period, rose by 1.1 percentage points from 13 percent recorded in February.

Food and non-food Inflation rates increased by 1.8 percentage points and 0.4 percentage points to 17.1 and 10.5 percent from 15.3 percent and 10.2 percent, respectively.