Treasury’s move to widen the tax-free band and increase minimum wage could boost demand and production of goods for businesses, but experts caution that this could be at the expense of other workers.
In an interview yesterday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira and Chamber for Small and Medium Enterprises executive secretary James Chiusti said businesses are banking their hopes on the increased disposable income for workers.
On his part, Kaferapanjira said businesses should look at the proposed 42 percent increase in minimum wage from K35 000 to K50 000 per month and widening of the tax-free band from K45 000 to K100 000 as a trigger for an enlarged effective market which could increase production of goods and services.
He said: “It is worth noting that the expansion of the tax-free band represents a subsidy from government. The tax revenue which was previously collected from the K55 000 added to the K45 000 will now be foregone by government.
“However, this can easily be compensated by the consumption taxes such as value added tax on the goods on which the extra money will be spent.”
On the other hand, Chiutsi observed that producers are often forced to sell at marginal profit to accommodate low-income earners which has led to low quality products offered on the market.
“Goods are made to suit the pocket of the buyer, not according to required quality. Our local producers use low quality packaging for example, just to ensure the merchandise is affordable,” he said.
In his K722.4 billion four-month provisional budget presented in Parliament in Lilongwe on Tuesday, new Minister of Finance Felix Mlusu said government will engage Malawi Congress of Trade Unions (MCTU) and Employers Consultative Association of Malawi to review the minimum wage.
MCTU had earlier proposed the minimum wage at K75 000.
In a written statement on Wednesday, taxation consultant Peter Kuwani, who is also Mbakuwaku Movement for Development president, said the tax measure will increase in disposable income ranging from 15 tambala to K15 750 per month since prospective beneficiaries are within a salary range of between K45 000 and K100 000 per month.
He, however, said the increase in minimum wage will increase the cost of doing business by 42.8 percent before factoring in a 10 percent employer pension contribution, which will push the cost further to K16 500.
Said Kuwani: “The tax policy is bound to lead to a tax leakage of not less than K1.57 billion per month and this is coming amid Covid-19 induced shrinking tax base.”
Labour analyst Halmiton Deleza said the proposed new minimum wage can be good to the economy, but this is more practical in economies with higher rates of employment.
He said employers will end up hiring less people, thereby contributing to increased unemployment in the economy.