Cooking oil now will no longer be taxed. And water may soon be the next commodity to be tax-free.
These are apparent ‘small’ but important developments in Parliament that are justifying Malawians’ celebration of the endorsing of the K1.3 trillion 2017/18 national budget yesterday in Lilongwe. The budget endorsement came after the national fiscal plan was passed on Thursday evening in the House.
Government had introduced VAT on wide-ranging commodities, like cooking oil, water and milk some four months ago, as a way of expanding the local revenue collection base. But this has courted public criticism hence the government’s piece-meal reversal of the move.
The other developments of note were an increase of the tax-free threshold from K20 000 to K30 000 and the introduction of a new tax bracket of 35 percent for persons earning a monthly income in excess of K3 million.
The budget has been passed and endorsed after parliamentarians from the government and opposition sides scrutinised and debated it for two weeks during cluster sessions and the just-ended weeklong interrogation of ministry, department and agency (MDA) allocations vote by vote.
Speaking on the Taxation Act Bill, Minister of Finance, Economic Planning and Development Goodall Gondwe told the House that an increase in the income tax-free bracket of pay-as-you-earn (PAYE) was effected to counteract the effects of inflation.
He, however, said with the introduction of the additional income tax bracket, including the 35 percent to be paid by those earning in excess of K3 million per month, he was optimistic that the K10 billion needed to balance the financial blueprint would be recovered.
According to Gondwe, this will also improve income distribution and bring equality in the income tax structure, among other things.
However, the minister also disclosed that government will be exempting VAT on cooking oil, in addition to milk, after receiving complaints and representation from Malawi’s cooking oil producers who said they were not able to compete with smuggled cooking oil on account of the VAT they pay.
“In order to check on smuggling and protect local industries, we are proposing exempting cooking oil from VAT,” said Gondwe.
The budget provides a big percent cut in spending as government’s attempt to diversify the economy have largely failed due to poor revenue collection.
However, before the passing of the Appropriation Bills, opposition members of Parliament asked the Finance Minister to consider removing VAT on water, as it is essential for living. n