Institute of Chartered Accountants in Malawi (Icam) has urged government to review some tax policies when drafting the 2016/17 National Budget to cushion Malawians from the current economic environment.
Speaking during a pre-budget consultation meeting yesterday in Blantyre organised by Ministry of Finance, Economic Planning and Development, Icam taxation and audit committee member Audrey Mwala called for the increase of the tax free bracket for employees from K20 000 to K50 000.
She said the zero percent threshold needs to be widened to help lower income earners move out of the poverty bracket.
Said Mwala: “Since 2012, the cost of living has continued to increase due to high inflation rates [currently at 23.4 percent] resulting in decreasing household income and purchasing power. Icam has, therefore, been suggesting substantial increases in the threshold at which individuals become liable to income tax.
“As a comparison to our neighbouring countries, we found that the threshold in Malawi is much lower.”
For instance, she said while the monthly income zero percent band remains at K20 000 (about $340 per capita gross domestic product (GDP), the monthly zero percent in the nearby countries, in approximate kwacha values are; Zimbabwe K130 000 ($953 per capita GDP); Zambia K200 000 ($1 844 per capita GDP); Botswana K240 000 ($7 315 per capita GDP) and South Africa K500 000 ($6 617 per capita GDP).
Mwala, however, said that even though the requested intervention may result in some loss of revenue, it may be easier to recover the gap by increasing value added-tax (VAT) revenue collection through the use of electronic fiscal devices.
She indicated that there is also need for reduced tax on interest rates, which would consequently encourage the culture of saving and investment.
“We suggest that government considered the economic environment at the moment which is largely unfavourable for individuals to invest and increase the K10 000 tax free portion to the K100 000 which should operate in such a way that only the portion that is above the K100 000 will be taxable at the standard rate and not the whole interest income earned,” said Mwala.
In response to the recommendations, Minister of Finance and Economic Planning Goodall Gondwe said there was indeed a need for the review of some of the tax policies, indicating that he will soon call for a roundtable discussion with Ministry of Industry and Trade, tax authorities, other stakeholders, as well as Icam to map way forward.
He, however, agreed with most of the issues raised at the meeting especially calls for the template of the budget to be changed to suit current economic circumstances.
Taking his turn, Economics Association of Malawi (Ecama) president Henry Kachaje told Gondwe that government needs to come up with a budget that supports independence of Malawians not create dependence.
“As we move away from donor-based budget, government must formulate a budget that will support productivity and offer incentives for transformation. We also need a policy-based budget, and at all cost, we must avoid waste,” he said.
Gondwe told industry captains that Malawi has to take a new path in as far as budget is concerned.
He said since Malawi gained independence, the budget was premised on at least 30 percent donor inflows, but this time around Malawi will be planning for 2016/17 National Budget without the support of traditional donors, Britain, Germany, Norway and European Union (EU). n