Players query 40% tax on ‘excess’ bank profits
Financial market players have queried Ministry of Finance and Economic Affairs’ decision to introduce a 40 percent corporate tax on commercial banks profits that are above the K10 billion threshhold.
In a statement winding up debate on the proposed K3.7 trillion 2023/24 National Budget presented in Parliament in Lilongwe yesterday, Minister of Finance and Economic Affairs Sosten Gwengwe said extra revenue from taxes imposed on banks will be used to mobilise resources for rebuilding livelihoods for survivors of Tropical Cyclone Freddy and the damaged infrastructure.
He said if a bank makes profits of up to K10 billion, the standard corporate tax rate of 30 percent will be applicable.
The minister said: “However, all profits above K10 billion, will be treated as excess profits and taxed at 40 percent. This is a temporary tax measure aimed at raising resources to assist in rebuilding of the affected areas.”
But a senior banker, who did not want to be mentioned, faulted the decision, saying it lacked legal basis and that the tax measure was discriminatory.
yet to be seen
In an interview last evening, the banker said: “The 40 percent tax bracket on individual income tax was scrapped off because it was contrary to the principle of tax equity. It does not, therefore, make sense to push the same to ‘selected’ banks.
“Tax laws should be applied fairly and equitably and not be targeting specific individuals or businesses. This budget update appears to be ultra vires, vis-à-vis, the current Malawi Taxation Act.”
In a separate interview, taxation expert Misheck Msiska said elsewhere governments introduce windfall tax in sectors deemed to be making extra profits and cast doubt on whether it will bear fruits as when punitive taxes are imposed taxpayers tend to manipulate figures.
He said: “Is it because they have evidence that banks have been making good profits? Much of the profits from banks come from government through domestic borrowing from the interest payments. But whether this is going to help or not is yet to be seen.”
In 2022, FDH Bank plc registered a profit-after-tax of K22.932 billion, up from K11.658 billion profit achieved in 2021 while Standard Bank plc reported a K39.2 billion rise in after-tax-profit for the year ended December 31 2022, from K24.7 billion registered the previous year.
On the other hand, NBS Bank plc said it expects profit-after-tax for the year ended December 31 2022 to be approximately over 140 percent higher than the profit recorded in the comparative period. In the year ending December 31 2021, profitability of the bank grew by nine percent to K7.69 billion, up from K7.05 billion, on account of what it described as its institutional growth.
In 2021, National Bank of Malawi (NBM) plc made a 52 percent after-tax-profit at K34.21 billion.
Meanwhile, Treasury has revised the 2023/24 National Budget downwards from K3.872 trillion to K3.789 trillion in anticipation of changes in macroeconomic assumptions underpinning the budget following the devastation caused by Tropical Cyclone Freddy.
Treasury also said it hopes to raise K30 billion through the Freddy Levy pegged at K54 per litre of fuel to be incorporated in the fuel price build up, but Gwengwe said this will not have an impact on fuel pump prices.
