Govt broadens tax base, removes VAT on milk

In its bid to increase domestic resources and finance the K1.3 trillion 2017/18 budget unveiled yesterday, Minister of Finance, Economic Planning and Development Goodall Gondwe announced a 10 percent television subscription and a 35 percent tax bracket on salary incomes of more than K3 million per month.

Presenting the 2017/18 National Budget yesterday in Parliament, Gondwe said the introduction of the two tax measures will to recoup lost revenue—estimated to be in excess of K10 billion—following the upward revision of the zero-rated Pay as You Earn (Paye) tax band from K20 000 to K30 000 per month.

Said Gondwe: “Government is already providing free TV services through MBC TV and it is pleasing to note that there are several free private TV service providers such as Zodiak, Times TV, just to mention a few, in addition to free religious TV service providers.

“Government has also introduced a Pay as You Earn [Paye] tax bracket of 35 percent for incomes in excess of K3 million per month which will not affect individuals who earn their income from businesses.”

The purse-keeper said government has also deleted the customs procedure code 443, which allowed duty-free importation of buses and minibuses for the past four years.

However, Gondwe said the relevant customs tariff headings for buses and minibuses shall be amended to provide duty and excise free provisions for buses and minibuses that are less than five years old.

Responding to the new tax amendments,  Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa said the problem has never been in resource mobilisation, but in expenditures, and said there is need to tighten the fiscal policy.

 “Looking at our capacity to mobilise domestic resources, if we compare to the Sub-Saharan Africa region, we are above average. We don’t really have a problem with the revenue generation, but fiscal discipline, spending and balancing priorities.

“What is of importance is the recognition of the suggestion to cover the high income earners that have been subjected to the same tax bracket like everybody else, which has not been progressive when they can do more, of course, without punishing them.”

Government has, however, removed the 16.5 percent Value-Added Tax (VAT) on milk which was introduced in the 2016/17 National Budget to encourage farmers to produce more milk for the market and boost the market for milk in the country.

Malawi Milk Producers Association (Mmpa) national director Hebert Chagona said this was a welcome development and urged milk processors in the country to react quickly to this development by increasing the farm gate price, which he said reduced following the introduction of VAT on milk, so that farmers can also benefit.

The minister has since proposed an amendment to the VAT Act to introduce stiff penalties to would-be-offenders to curb the malpractice of using fake or unlicensed electronic fiscal devices (EFD’s).

Gondwe is hopeful that government will raise about K980.3 billion in domestic revenue to finance most of this year’s budget.