Institute of Internal Auditors Malawi (IIA-M) has asked Treasury to consider reducing value added tax (VAT) to between 14 and 15 percent to allow people have disposable income.
In a presentation at the 2019/20 pre-budget consultation meeting in Blantyre on Friday, IIA-M president Thokozire Kuwali said at 16.5 percent, the VAT rate in Malawi is high compared to other neighbouring countries.
Figures provided by IIA-M show that VAT in Botswana is pegged at 12 percent, 15 percent in South Africa, Zimbabwe and Swaziland while in Kenya and Zambia it is at 16 percent.
In Tanzania and Rwanda, VAT, which is a consumption tax placed on a product whenever value is added at each stage of the supply chain, is at 18 percent, which is higher than in Malawi.
Said Kuwali: “While we agree that VAT has some advantages when compared to other tax instruments prevalent in developing countries which is explained by its widespread adoption around the world, the advantage outweighs the disadvantages where VAT rate is high as it decreases people’s disposable income.
“The low-income earners are the most disadvantaged when it comes to making ends meet.”
She observed that the current VAT threshold, that prescribes that any business that makes or expects an annual turnover of K10 million or above, [equivalent to about $12 909] should register for VAT, is low as compared to other African countries.
For instance, in South Africa, the threshold stands at $ 71 970 (about K53 million), in Zambia $63 877 (about K47 million), in Zimbabwe $60 000 (about K44 million), in Tanzania $43 470 (about K17 million), in Kenya $48 539 (about K32 million) and in Uganda at $40 560 (about K30 million).
Kuwali said there are many arguments over low VAT threshold, but added that as an institute, they feel that low VAT threshold does not only affect the number of start-up and established small businesses but also affects MRA’s administrative costs for VAT collection.
“On the other hand, some small businesses may be evading tax and suppressing their declared income from the actual figure to ensure that they remain below the VAT registration threshold,” she said.
Weighing in on the same, Institute of Chartered Accountants in Malawi (Icam) chief executive officer Francis Chinjoka Gondwe said increasing the VAT threshold to K50 million will give an opportunity to small and medium enterprises to grow while allowing MRA more time and resources to manage taxpayers with bigger income that will create real value.
He also called for the removal of VAT on basic essentials such as water, electricity, bread and cost of communication, especially airtime.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) head of real sector and macroeconomic policy Hope Chavula said there is need to review the implementation of VAT and consider other products manufactured locally, including printed education materials.
“VAT for manufacturing textbooks like orienting paper, makes the locally produced textbooks expensive and uncompetitive than the imported ones as the latter are imported at custom duty-free and VAT-free,” he said.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha said Treasury will have to evaluate the proposal before a decision is made to balance the budget in terms of revenue against expenditure.