Employers Consultative Association of Malawi (Ecam) has asked government to suspend the implementation of 16.5 percent value added tax (VAT) to be levied on pension administration fees beginning today.
Ecam, a representative body of employers, argues that there is need to suspend the implementation of the law until consultations are undertaken and Parliament subsequently amends the Pension Act, 2010.
In a letter dated August 25 2020 addressed to Secretary to the Treasury and Principal Secretary for Labour, Ecam executive director George Khaki said the implementation of Section 16 of the VAT Act will likely push upwards the cost of providing social security.
He said: “Besides the job losses, as employers struggle to raise money to pay both pension contributions and the new tax on pension administration fees, this will result in decent work deficits with negative implications on national economic growth and creating productive employment.”
Historically, pension business was undertaken by life insurance firms and pension contributions were paid together with life insurance premiums as a percentage of the payroll together with pension administration fees.
But following the enactment of the Pension Act, 2010, life insurance business was separated from pension administration operations to comply with the Act.
A quick survey of countries within the Southern African Development Community on the status of the tax levied on pension administration fees show that out of five countries, South Africa, Lesotho, Namibia, Tanzania and Zambia, only South Africa levies tax on pension administration fees.
As a member of the International Labour Organisation (ILO), Malawi ratified ILO Convention Number 144 of 1976 on Tripartite Consultation (International Labour Standards).
By virtue of this governance convention, the Malawi Government is compelled to consult Ecam as a representative of employers and other social partners on any measures surrounding pensions as a matter of principle and this is non-negotiable.
Ecam’s concerns come in the wake of another proposal by the Malawi Congress of Trade Unions, a representative body of employees, to suspend the implementation of the tax until after the impact of Covid-19 has minimised.
But in an earlier response, MRA head of corporate affairs Steve Kapoloma said tax laws are formulated through policy at the Ministry of Finance and passed in Parliament.
He said: “Pension administrators charge an administration fee for managing pension schemes. The fee attracts VAT like any other fee charged on taxable services.”
Reserve Bank of Malawi figures show that total pension contributions amounting to K20.2 billion were outstanding at the end of 2019, a rise from K13.1 billion reported in the prior year.