The Malawi Revenue Authority (MRA) has warned on proposals to have the zero tax band threshold, currently at about $ 36.00 (K15 000), hiked upwards.
The authority has cautioned that doing so would have serious tax revenue implications on the economy.
MRA has also faulted suggestions on preferential tax incentives to selected firms in form of tax holidays, saying much as tax holidays have proven to be good, they are not a ‘panacea’ to increase production among private sector players.
MRA deputy commissioner general Crispin Kulemeka was reacting to proposals by the Economics Association of Malawi (Ecama) and the Economics Justice Network (Mejn) who suggested a hike in the zero-rated tax band and also ensure tax holidays to incentivise some firms.
Ecama executive director Nelson Mkandawire suggested during a pre-budget consultation meeting for the 2013/14 fiscal year on Friday in Lilongwe that government must hike the pay as you earn (Paye) zero tax band to $ 109 (K45 000) considering low middle wage earners against economic shocks.
“This will minimise industrial strikes and likely boost morale,” he argued.
On tax incentives, Mkandawire also asked government to provide tax holidays for about one and a half years to firms that would generate income about $1 million ( K 413 million )and who are engaging in production of prioritised crops in the National Export Strategy (NES) or in the Economic Recovery Plan (ERP).
But Kulemeka in his reaction said: “The proposal to increase the tax free band to say $109 (K45 000) has serious revenue implications. Tax incentives on one hand are good but not a panacea to improve production of private sector players. But this is a policy issue which is in the hands of government.”
He argued that in an environment where infrastructure is poor and where power outages are rife,’ tax incentives cannot work.’
“Just a word of caution, we should not think tax incentives or holidays are a panacea or solution to our problems. They do help but they need to be supported by other policies as well,” he added.
In his presentation, Mkandawire said regarding domestic resource mobilisation, excise duty increases should target harmful consumable commodities, luxurious vehicles while sparing bottled water and soft drinks.
In his submission to government, Mejn executive director Dalitso Kubalasa also proposed that the zero-rated tax threshold for low income earners should be raised to at least $ 97 (K40 000), a move which he hoped could cushion them from the rising cost of living.
He tipped that to cover for the likely shortfall in revenue; government should improve on efficiency in tax collection, especially for the unscrupulous whom he said are still dodging taxes through tax avoidance and evasion.