Taxation expert Emmanuel Kaluluma says a good tax regime should be based on equity in which all taxpayers are subjected to similar conditions.
In an interview on Wednesday when he commented on the tax measures in the proposed K2 trillion 2020/21 National Budget, he described the tax measures contained in the fiscal plan as discriminatory as they have “traits of unfair tax policies”.
Kaluluma, who is a senior tax consultant at E.K. Tax Consultants, faulted Treasury for offering duty-free tax benefits to few individuals such as members of Parliament, Cabinet ministers and chiefs, among others, who will be eligible to import duty-free vehicles.
Apart from the mentioned groups set to enjoy tax relief in the 2020/21 fiscal year, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha also awarded tax-free income status to the clergy and health workers.
He said: “The clergy plays a very important role in our society. In order to recognise this role anQd improve their welfare, government will now exempt personal income tax from salaries paid to the clergy under the First Schedule of the Taxation Act.”
But Kaluluma argued that tax reliefs are not necessary at a time the budget has a huge deficit and everyone, including salaried workers such as the clergy, is feeling the pinch of economic hardships caused by the twin challenges of political impasse and the Covid-19 pandemic.
He said: “A good tax system should embed equity. Look at the treatment that they have offered the clergy, it lacks on equity. We go to the same shops, you earn money through the services that you render, then why differentiate?
“This is what is dangerous because it creates tax distortions in the tax system and a good system should boast of equity. These are some things retarding growth and all these are tax expenditures due to selfish reasons.”
The 2020/21 Budget deficit is projected to swell to K651.5 billion, an equivalent of 9.1 percent of the gross domestic product (GDP) or a third of the total budget.
This will be a rise from the projected fiscal deficit for the current 2019/20 Budget of K632.1 billion, which will come about due to subdued revenue performance, increased security expenses in relation to the post-election demonstrations, election case expenses and other court claims, high proportion of mandatory expenses and increased expenses in response to the Covid-19 pandemic.
Kaluluma said the tax measures are not in line with the statement the minister made in admitting failure to meet the budget revenue targets.
But on Monday, another tax expert Misheck Msiska argued that the new tax measures will help promote local business and spur employment opportunities.
In his virtual presentation during the Post-Budget Presentation Seminar organised by the Institute of Chartered Accountants in Malawi on tax measures, he cited the introduction of 10 percent surcharge on exercise books, text books, blankets, confectioneries, stick matches, opaque and clear beer, dressed chickens and eggs which will support local manufacturing and employment.
He said the review of Industrial Rebate Scheme from 20 percent to 35 percent will encourage domestic production and exports.