Senior public officers’ perks face chop

Treasury will have to repeal the preferential treatment for motor vehicle and value-added tax (VAT) relief that senior public officers enjoy to meet objectives of the International Monetary Fund (IMF) Extended Credit Facility (ECF), it has emerged.

The measure, expected to enhance revenue and improve tax and customs compliance culture, is part of the Government of Malawi’s Structural Benchmarks under the ECF arrangement.

The review is expected to come into effect by July 2024 and will affect current and former politicians, senior public officers, judges and other similar privileged individuals and groups.

The commitment is contained in a Memorandum of Economic and Financial Policies (Meep) which Malawi has drawn in consultation with IMF staff in accordance with the fund’s policy.

Treasury has also committed to ensure that every supply of a motor vehicle is standard-rated for VAT purposes.

Reads the memorandum: “We will repeal the VAT relief for current and former politicians, senior public officials, judges and other similarly privileged individuals and groups  and ensure that every supply of motor vehicles is standard rated for VAT purposes.”

Minister of Information and Digitisation Moses Kunkuyu in an interview yesterday said the measures have been under continuous discussion as possible ways of enhancing our domestic revenue mobilisation.

In a Letter of Intent to IMF managing director Kristalina Georgieva, Minister of Finance and Economic Affairs Simplex Chithyola Banda and Reserve Bank of Malawi Governor Wilson Banda stated that Malawi was ready to take additional measures that may be needed over and above those articulated in the Meep in consultation with IMF staff in accordance with the fund’s policy.

In an interview yesterday, Economics Association of Malawi (Ecama) president Betchani Tchereni observed that apart from increasing the tax base and revenue if implemented, the measure will assist to address some form of income inequality.

He said: “Senior government officials buy expensive cars and are exempt from tax. It is a mockery of economic justice that those who earn more get more preferential treatment and those who earn less do not have such treatments.”

However, taxation expert Emmanuel Kaluluma of EK Tax Consultants said while the measure may be focusing on cutting expenditure, “it is a zero sum game” because the senior officer will still have more benefits entitled to them.

He said: “It can only have value addition if the country stops giving benefits to senior employees.”

But in a separate interview last evening, IMF resident representative Nelnan Koumtingue said a comprehensive assessment would also take into account the impact of these measures on the overall budget deficit, debt sustainability, income distribution and the business environment.

“But I can tell you that domestic revenue mobilisation is a pillar of the programme and also a priority for the authorities in the context of the domestic revenue mobilisation strategy,” he said..

Malawi on November 15 2023 got the nod of the IMF Executive Board for a four-year ECF worth $175 million expected to stabilise an ailing economy by unlocking direct budget support.

Prior to the approval, Malawi has implemented a series of reforms that Capital Hill said were tough, but necessary to convince development partners that policymakers were committed to reforms to revitalise the ailing economy.

Since the government signed the PMB in November 2021, the Reserve Bank of Malawi has raised the policy rate three times from 12 percent to 24 percent.

The central bank has also devalued the kwacha twice, first by 25 percent in May last year followed by 44 percent on November 9 2023.