The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has called for review of the tax policy and reduce some taxes to enable local industries to be competitive.
In its private sector proposals for 2021/22 National Budget, the private sector lobby group said the country’s tax policies create an environment where smuggled goods thrive.
MCCCI wants Treasury to remove value added tax (VAT) on wheat flour and soap noodles while moving locally printed educational materials, including text books from VAT exempt to zero-rated category.
It also wants taxes on importation of raw materials for manufacturing activities and import duty on machinery spare parts removed, arguing the taxes create high machine maintenance costs.
To create more industrial growth opportunities, MCCCI has suggested that withholding tax rate for all small and medium enterprises (SMEs) and excise duty be reduced from 20 percent to 10 percent and from 30 percent to 20 percent respectively.
Reads the submission in part: “Deliberate efforts should be made to grow our processing and manufacturing sector otherwise we will be stuck as an import-dependent economy.
“Domestic tax and non-tax reforms have also been registered as a challenge because of uncertainty that surrounds implementation of tax reforms, which are introduced during budget session.”
The proposals by MCCCI come as government is on the drive to widen the tax net and broaden the base by, among others, exploring new areas to tax, increase enforcement and monitoring compliance.
It is also coming at a time domestic revenue continues to shrink due to the impact of Covid-19 pandemic on businesses and the economy.
Due to revenue underperformance, the 2020/21 fiscal plan was revised upwards from K2.19 trillion to K2.33 trillion with total revenues and grants revised upwards from K1.43 trillion to K1.52 trillion, representing 16.5 percent of the country’s gross domestic product (GDP).
The increase has also widened the deficit from K755.1 billion to K810.7 billion, representing 8.8 percent of GDP.
Reacting to MCCCI proposals yesterday, tax expert Emmanuel Kaluluma, who is senior tax consultant at EK Tax Consultants, said it is impossible to reduce rates of some taxes.
He said with certain expenditures being fixed, having government to lower taxes will mean reduced revenues for such costs.
Said Kaluluma: “The proposal by MCCCI should have come at a time when everything is alright. We are going through difficult times and reduced revenues at this time could spell doom for the nation.”
He observed that reducing the excise tax will only make goods from other neighbouring countries cheaper, which does not protect local businesses as excise tax protocol calls for equal taxes.
In the second half, Treasury is projecting total revenue and grants at K875.8 billion of which K621.6 billion is domestic revenue and K254.2 billion are grants.