Icam wants mismatch in taxes corrected
Institute of Chartered Accountants in Malawi (Icam), a grouping of chartered accountants, wants Treasury to correct the mismatch on pay as you earn (Paye) and tax on businesses.
Icam contends that it is erroneous to tax individuals earning more than K3 million per month at the rate of 35 percent yet individuals engaged in businesses pay tax at a rate of 30 percent.
When introducing the new tax bracket of 35 percent in June 2017, Minister of Finance, Economic Planning and Development Goodall Gondwe wanted to fill up the K10 billion hole created by increasing the minimum Paye threshold from K20 000 to K30 000 per month.
He said then: “One of the ways of recovering this lost revenue is by bringing in more progressivity in our tax system.
“In order to improve the distribution of income from the rich to the poor and increase the progressivity of the tax system, government is introducing an additional bracket of 35 percent on those earning salaried income above K3 million.”
Gondwe argued that this top rate of 35 percent will not affect individuals who earn their income from businesses.
But in its comments, evaluations and recommendations on the 2017/18 half-year budget performance, Icam argues that the change has caused distortions in taxation of individuals that are both on employment and also carry out their own businesses.
Because of the change, the accounts body said this may require the individual to submit two separate returns, one where taxable income will be subject to tax at 30 percent and the other one at 35 percent.
Said Icam: “Paye is a withholding tax in line with Section 102 of the Taxation Act. A withholding tax in this context is advance payment of tax by an individual as covered in part VI of the Taxation Act, under individuals.
“Based on the provisions of the Taxation Act, an individual on employment income is subject to tax at the same rate as an individual earning income in a sole proprietorship, a partnership or any form of income where tax ought to be assessed on the individual rather than a corporate person.”
Icam said this fiscal year’s amendment regarding taxation of individuals has singled out only individuals on employment income for a higher rate of taxation at 35 percent while individuals doing their own businesses enjoy the lower rate of 30 percent.
“It is erroneous to change only the eleventh schedule containing rates of taxes without changing the underlying law contained in part VI of the Taxation Act regarding taxation of individuals. It has to be stated, if anything, within part VI that persons on employment are no longer subject to the law regarding taxation of individuals.”
Gondwe yesterday said he needed time to consult on the issues raised by Icam.
Tax analyst Emmanuel Kaluluma agreed with the observations by Icam, saying a good tax regime is supposed to be neutral.
“Neutrality comes in when rates apply to everyone. It should not take someone who is employed to pay five percent more. At the end of the day, money is money.
“Some businesses are more prosperous…the tax should have applied across the board. The law is segregating,” he said, stressing that law is rather crude.
In the half-year ending December 31 2017, Malawi Revenue Authority (MRA) collected K412 billion, which is 18.9 percent short of the target of K490 billion.
This fiscal year’s target for domestic revenue is at K980 billion. n
