—Government hikes tax on internet
Malawi Finance, Economic Planning and Development Minister Goodall Gondwe yesterday (Friday) found himself between a rock and hard place when he presented a 2015/16 budget which many described as a “struggling” and “not so inspiring” fiscal plan.
The key features of the 2015/16 budget are the lack of budgetary support and lower revenues and grants due to a decrease in donor support.
But the budget, which several economic experts had no kind words for, projects recurrent expenditure of K674.6 billion and development expenditure of K224.0 billion, assuming an increase in tax and non-tax revenues on account of an enhanced tax administration.
–Notable budgetary allocations–
In terms of direct allocations to key line ministries, the budget has allocated K133.7 billion to the Ministry of Agriculture, Irrigation and Water development; K109.8 billion to the Ministry of Education, Science and technology and K77.4 billion to the Ministry of Health.
The budget also proposes an increase in wages and salaries for junior civil servants, recruitment of 10 500 primary school teachers, 466 secondary school teachers, which raises the wage bill from K198.0 billion in 2014/15 to an estimated K228.7 billion in the 2015/16 budget.
The budget has also apportioned K6.5 billion for maintenance and rehabilitation of roads within the country’s four cities, apart from setting aside K10 billion for drug purchases for district councils over and above their development resources.
Another notable new measure is the reduction in the allocation for the Farm Input Subsidy Programme (Fisp) to K40 billion from K59.7 billion in the 2014/15 budget.
–Tax measures–
On tax policy and administrative measures for the new budget, Gondwe said a 10 percent excise duty will be levied on text messaging and all data transfers, including internet and similar services.
The budget will see second hand motor vehicle dealers and car importers smiling as excise duty on imported vehicles with engine capacity exceeding 3 000cc has been reduced.
Said Gondwe: “For new motor vehicles up to 8 years old, excise duty will be reduced from 55 percent to 40 percent; for motor vehicles aged above 8 years old up to 12 years, excise duty will be reduced from 88 percent to 60 percent; and for motor vehicles aged above 12 years old, excise duty will be reduced from 110 percent to 80 percent.”
Excise duty on dry cell batteries has also been reduced from 30 percent to 10 percent, a tax measure which will likely induce the use of batteries by rural dwellers.
Small-scale cross border traders will see the threshold value for entry of goods on Customs and Excise form 12 being increased from K100 000 to K500 000.
This, Gondwe said, will likely reduce the time spent at the port of entry for small and medium business people or travellers who import goods from our neighbouring countries, and is expected to ease the cost of doing business.
Government has also revised the minimum fine in the Customs and Excise Act from K10 000 to K100 000 on importers of goods and services.
–Quick reactions–
Economist Thomas Munthali said in an interview after budget presentation that it is clear that authorities struggled to craft the budget in absence of budget support.
Said Munthali: “Government is completely struggling and does not know where and how to get the money for the budget.”
He was supported by the Economics Association of Malawi (Ecama) president Henry Kachaje who questioned Gondwe’s optimism with the budget.
Kachaje, for instance, wondered why Gondwe comfortably projects in the budget that the domestic economy would grow by an average of seven percent amid devastating impact of floods that hit the county earlier in January.
“Where is he getting this confidence? It’s a bit challenging because the floods will push inflation upwards as there will be less maize produced,” said Kachaje.
The Ecama president also stated that the budget falls short of a “transformational agenda” that most people hoped to hear from Gondwe.
Consumer right activist John Kapito also trashed the budget and branded it “not inspiring,” saying consumers will most likely bear the blunt of most tax measures outlined by Gondwe.
The Malawi Economics Justice Network (Mejn) Executive Director Dalitso Kubalasa while describing the financial plan as a “courageous budget”, said the statement lacks ‘nitty-grities’ to how government intends to implement certain Programmes.
However, the International Monetary Fund (IMF) Country Representative Geoffrey Oestreicher said government seems to achieve a credible balance between social and development spending in the new budget.
That, according to him, will help the domestic economy attain macroeconomic stability.
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Check out WEEKEND NATION today for indepth coverage of the budget.
