Pressure on govt to raise zero-tax band

Pressure continues to pile on Ministry of Finance and Economic Affairs amid calls to increase the zero-tax band in the 2024/25 National Budget as consumers seek relief from a  cost of living crisis that has eroded their buying power.

The Consumers Association of Malawi (Cama) is proposing that Treasury should increase the zero-tax  band threshold from K100 000 to K300 000 while Oxfam in Malawi wants the band to be increased to K400 000 to protect low-wage earners from the burden of taxes.

In an interview on Tuesday, Cama executive director John Kapito said increasing the band could help the low-income earners not to suffer from the burden of rising inflation and taxes.

He said: “Increasing the tax-free band to K300 000 would help free up incomes for consumers who are struggling with reduced purchasing power in the wake of rising inflation and the impact of 44 percent kwacha devaluation.

“At the moment, consumers are struggling to survive as government is taxing the little that they earn as they also have to pay more taxes from what is left.”

In separate interview, Oxfam in Malawi country director Lingalireni Mihowa said in all the country’s four cities, the cost of living is over K400 000 for a family of six, an indication that low wage earners are barely surviving.

She said: “Our proposal is informed by rising cost of living. When you look at the trajectory of inflation, it shows that households are facing economic depression, as such, there is need to raise the tax-free band to K400 000 to correspond with the cost of living.”

Mihowa said government can make savings for the lost pay as you earn (Paye) by minimising luxury budget lines, as low wage earners are also paying as many taxes when making various purchases.

Meanwhile, the average cost of living has increased by approximately nine percent to K433 793 in November largely due to the 44 percent kwacha devaluation, according to data compiled by Centre for Social Concern (CfSC).

The data shows that the most expensive city in November was Blantyre with a cost of living pegged at  K505 427 from K461 421 in October, representing an increase of 9.5 percent followed by Zomba at K455 451 from K401 274 in October, a 13.5 percent increase.

In a separate interview, Employers Consultative Association of Malawi executive director George Khaki said while employers are doing their part in raising salaries, government should do its part by raising the tax-free band.

He said employers would support any increase because they are aware that raising the zero-rated tax band could take away Paye revenue from government, which has to find a way of recouping the same.

Last week, the Institute of Chartered Accountants in Malawi also asked government to consider increasing further the zero-tax bracket to K150 000 to help cushion low-income earners who are grappling with the cost of living crisis.

The proposals are a deviation from the tax schedule announced in the 2023/24 National Budget Statement and came into effect on April 1 last year which 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 schedule, workers earning between K330 001 and K3 million are subjected to 30 percent tax while those earning between K3 million and K6 million are taxed at 35 percent and those above K6 million at 40 percent.

This was a revision from the Paye brackets in which those earning between K100 000 and K1 million were taxed at 25 percent, 30 percent was levied on earners of between K1 million and K3 million while those earning above K6 million were being taxed at 40 percent.

At that time, government justified the move, saying it was meant to improve the progressivity of the Paye system and also ensure that government continues to collect realistic revenues from the tax line.

Minister of Finance and Economic Affairs Simplex Chithyola Banda earlier said the budget remains an important tool in fostering economic prosperity and eradicating poverty, especially in times like these when the economy is experiencing various challenges.