Tax experts have come to the defence of Minister of Finance, Economic Planning and Development Goodall Gondwe on revising the tax-free band, saying there is need to identify alternative revenue sources to fill the gap likely to be filled by the review.
The experts—Misheck Msiska, Lekani Katandula and Emmanuel Kaluluma— were reacting to a recent statement by the Centre for Social Concern (CfSC) which has lobbied government to increase the tax-free band from the current K20 000 to K80 000.
The Lilongwe-based socio-economic organisation argued a published statement that it would be fair to ensure that those that earn significantly higher to highest earning brackets be allowed to also progressively contribute to the economy than is the case at the moment.
The Centre suggests a revision of the tax bands as a way of ensuring a redistribution of income as a contribution to the reduction of the growing dangerous divide.
But Kaluluma, while admitting that the tax-free band is a vicious cycle, said government needs money to sustain its operations.
“We know that government needs money, but when they lift the poverty line from K20 000 to maybe K50 000, it means that K50 000 will be taxed at zero. The bad side of this is that it includes even higher income earners. Indirectly, it takes away the revenue base,” he said.
Kaluluma said in this context it is practical that government leave the K20 000 threshhold but add more income to be taxed at 15 percent to help low income earners .
In a separate interview, Msiska noted that Pay As you Earn (Paye) is the surest way that government collects taxes as compliance for small business people is still a challenge; hence, adjustment of the tax free band will remain an issue.
“Most Malawians earn little, but government has no choice, but to collect from these few people and if they [government] the threshhold is increased to more the K50 000 am government is likely to lose out a big chunk of revenue,” he said.
On his part, Katandula noted that there is need for government to find a way to balance its tax revenue through taxes against the social needs that people look for.
“It might not necessarily mean that government is in disagreement with various proposals made to adjustment the free tax band, but rather it might be that government is battling to balance their books without taxing so many people,” he said.
In an interview on Monday, Gondwe said government is not ready for any revisions on the tax-free band, saying the country’s position cannot permit such a proposal.
“With such an increase, almost a quarter of the total money that government acquires will be lost and this is not practical. This is time we all have to very sensitive. At a time when the country has lost almost all the budgetary support, we cannot reduce our own taxes,” he said.
When asked on the practicality of the proposal CfSC economic governance programme officer Lucky Mfungwe said the organisation wants government to increase the tax-free band.
He said his organisation feels it is not practical that a person getting, for instance K4 million and another K60 000 be taxed the same rate of 30 percent.
“We have tried to engage the Malawi Revenue Authority [MRA] on the percentage of people in terms of each category [tax band] t but they have been unable to produce this. This leaves a lot of questions as to how government pegs the tax bands,” he said. n