2012/13 budget difficult—Lipenga

Malawi’s Finance Minister Ken Lipenga has admitted that the 2012/13 national budget will be a ‘particularly difficult’ plan because it comes at a time when lot is happening in the economy.

Lipenga’s pronouncement comes a day after he indicated government will do away with the controversial zero-deficit budget in which Malawians were saddled with punitive taxes that made life unbearable in the hope of balancing the books.

Speaking on Wednesday ahead of pre-budget consultations the ministry has lined up with various players beginning Monday May 14 in the commercial hub, Blantyre, he said the budget also comes at a time when there is expectation of the resumption of a programme with the International Monetary Fund (IMF).

The budget will be presented at a time when government, through the Reserve Bank of Malawi (RBM), has devalued the kwacha by 49 percent to be in line with the recommendations from the international lender whose programme with Malawi, $79.4 million Extended Credit Facility (ECF), went off-track in June 2011 and expired inconclusively in February 2012.

“We expect pointed questions from various players. I expect them to suggest what has to be contained in the budget. However, Malawians have hope and high expectations, especially with the new President [Joyce Banda] that things will change for the better. This will be a completely new budget framework, different from the previous ones,” said Lipenga, but he could not elaborate.

Though there is not much time for consultations, the minister is looking forward to constructive input from a cross section of Malawians so that the budget is representative of their aspirations.

“We don’t have much time, but it is better to do the consultations than not doing them at all,” he said, adding that ministry officials are working overnight as they do not have much time.

The minister said due to lack of time, the consultations in Lilongwe and Mzuzu will be held on the same day, Wednesday May 16.

The budget session is scheduled to be opened by the President on Friday, May 18, according to a statement from the Speaker of Parliament Henry Chimunthu Banda.

Normally, the Minister of Finance engages the private sector, civil society and academia, among others, to hear their input on what should be contained in the budget.

It is at these consultations where Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and the Society of Accountants in Malawi (Socam) give their input on the expectation of the private sector particularly on taxes.

At a recent MCCCI annual general meeting (AGM) in Blantyre, Socam tore into the country’s taxation regime arguing it has numerous upfront taxes thereby slowing businesses and consequently making government a 30 percent shareholder in every legitimate business.

The Malawi’s accountancy professional institute has cited the withholding tax (WHT) at 10 or 20 percent saying it is high for Small and Medium Enterprises (SMEs), value added tax at 16.5 percent, provisional tax-an advance payment of income tax made in quarterly instalments, the 30 percent on corporate tax and the one and two percent turnover taxes for turnover under K50 million (about $200 000) and over, introduced in the 2011/12 budget as hindering growth of businesses.

Socam chief executive officer Daniel Dunga called for an overhaul of the entire taxation regime, arguing there are too many inconsistencies within the Tax Act and other tax legislation such as export allowance and Pension Act.

He said the taxation regime is critical to any significant investor since many of them perform investment appraisals before undertaking any investment projects.

“The most common model for investment appraisal is the internal rate of return (IRR), that is to say, how much money an investment will generate. The IRR formula includes tax as a very important component,” said Dunga in his presentation titled ‘The role of tax in business growth’.

Investors investigate tax concessions and investment allowance that are available to an investor in a country before committing to invest, arguing that each country competes as an investment destination with the other equally attractive destinations.

The World Bank Doing Business Index for 2012 showed that Malawi has too many taxes for business and it takes too much time to conclude a tax return or a tax matter.

Dunga said 60 percent of businesses’ time is spent dealing with tax issues.

He said since Malawi’s gross domestic product (GDP) has been narrowing, many businesses have also reported shrinking profits.

“Tax can only increase from GDP growth, otherwise if tax is growing much faster than GDP, it means people are being overtaxed,” he declared, adding that the effects of overtaxing include business closures, no new investments, tax underperformance, tax evasion, tax corruption and narrowing tax base.