Winners and losers in new tax measures

Minister of Finance and Economic Affairs Simplex Chithyola-Banda yesterday introduced new tax measures meant to cushion low-income earners grappling with the cost of living crisis while broadening the tax net.

In his projected K5.98 trillion 2024/25 National Budget Statement presented in Parliament, Chithyola-Banda said effective April 1 2024, the zero pay as you earn (Paye) bracket will be increased from K100 000 to K150 000.

Accordingly, the next K350 000 will be taxed at 25 percent while the next K2 050 000 will be taxed at 30 percent and K2 550 000 will be taxed at 35 percent.

He said: “To cushion employees in formal employment from the effects of the currency alignment, the government has increased the zero-Paye bracket from K100 000 to K150 000.”

The zero tax free band comes amid piling pressure on the Ministry of Finance and Economic Affairs  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 proposals are a deviation from the tax schedule announced in the 2023/24 National Budget Statement which came into effect on April 1 last year 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 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.

Meanwhile, Chithyola-Banda said recognising the assistance the private sector provides to people who have been affected by various calamities in the country, government will allow 100 percent deductions for monetary donations to calamities made through the Department of Disaster Management and 50 percent deduction on the cost of a private sector-drilled borehole.

Treasury has also reduced withholding tax for mobile money agents from 20 percent to one percent to align with the prevailing withholding tax rate for banks and insurance agents.

“In addition, most of the mobile money agents do not make enough money to pay personal income tax as their income falls below the minimum threshold of paying personal income tax,” he said.

As one way of promoting the use of locally sourced raw materials for production and promoting farmers, Treasury has announced the reduction of excise tax on clear beer made from sorghum and maize from 40 percent to 20 percent, a move the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has since hailed.

Treasury has also extended the removal of import duties and taxes to electric motorcycles.

To address student accommodation challenges in tertiary education institutions, Chithyola-Banda said government will waive import duty and import excise tax on building materials, furniture, and fittings specifically for the construction of tertiary education students’ hostels.

To encourage value addition and promote local manufacturing, government will allow the Malawi Army, Malawi Police Service and Malawi Prisons Service to import duty-free fabrics and accessories for making uniforms.

However, Treasury will increase import duty on finished iron sheets from 15 to 20 percent, on sacks from 20 to 25 percent and introduce a surcharge of 10 percent on sacks for cement packaging.

To align with the taxation of other petroleum products such as petrol, paraffin and diesel, import duty has been increased from 20 percent while import excise duty of 10 percent has been introduced on automotive lubricants.

Treasury has also introduced import duty of five percent and exercise duty of of 10 percent on airplanes and other aircraft of un-laden weight exceeding 2 000 kilogrammes (kg) but not exceeding 15 000 kg. Petroleum jelly will also attract excise tax of 10 percent.

Meanwhile, the 10 percent corporate income tax on profits above K10 billion, which Treasury effected on banks has been extended to all businesses that make such profits to ensure equal and fair treatment of super normal profits.

In his reaction at Parliament yesterday, Institute of Chartered Accountants in Malawi director of technical and membership services Charles Chimpeni commended government for considering the plight of the poor by increasing the tax free band and supporting education.

He said: “This is good and has really taken care of poor people.”

Speaking separately, governance commentator and Youth and Society executive director Charles Kajoloweka said the raise of the taxi free band is worth celebrating as it will make a huge difference to low-earning Malawians.

“But we would have loved a 100 percent increase to K200 000 to respond to current economic realities,” he said.

On his part, MCCCI president Lekani Katandula described the tax policy measures as a “mix” of measures.

He said: “While the reduction of mobile money transaction is a good thing, extending the 10 percent corporate tax on profits to all business will be a disappointment.

“The reduction of taxes will benefit other members.”

In its 2024/25 Pre-Budget Proposal, Bankers Association of Malawi had asked Treasury to either remove the 10 percent corporate tax or extend it to all companies making profits that exceed K10 billion or if the tax bracket is to be retained, give it a timeframe.