Parties offer little on tax burden

With only 13 weeks to the May 20 Tripartite Elections, there is little political parties are offering on tax reforms to relieve the burden of Malawians whose huge chunk of income goes to the taxman.

The opposition Democratic Progressive Party (DPP), when asked what it was going to offer on tax reforms having left government about two years ago after imposing high taxes on Malawians under the leadership of former president the late Bingu wa Mutharika, said the problem is the narrow tax base and the party intends to widen it.

The party’s director of economic affairs, Fraser Nihorya, justified the high taxes during their time in an interview this week, arguing the DPP government had a sour relationship with donors who withdrew funding.

Malawi Congress Party (MCP) director of economic affairs, Neil Nyirongo, said if the party is voted into power, it would look at the tax system side by side with the fiscal system.

Nyirongo said MCP, which ruled for 30 years in a one-party system of government, understands that there is a huge tax load saddled on few Malawians.

He expressed the need to broaden the tax base, but said it has to be done without losing fiscal leverage.

“Quality of the fiscal system can, to large extent, reduce inequality through careful design of tax and spending policies. For example, broadening the tax base, and making taxation more progressive; improving access to health and education, and putting in place effective social programmes that avoid creation of winners and losers towards inclusive economic activity.

“More inclusion and opportunity in the economic life also means less cronyism and corruption that would eventually lead to reduced tax burden on the taxpayer. This is one of the priorities on the MCP policy agenda,” Nyirongo said.

The ruling PP, when asked how it intends to address the issue, if given a mandate to govern for the next five years, said tax issues are better addressed by government and not a political party.

The party’s deputy publicity secretary, Ken Msonda, said the PP manifesto is a blueprint of policies, ideologies, values, programmes and objectives of the party on how best the nation can be developed to the benefit of the citizenry.

But Malawi Confederation of Chambers of Commerce and Industry (MCCCI) executive director, Chancellor Kaferapanjira, said politicians can do Malawians a great deal to address the emotive tax issue in their manifestos.

Kaferapanjira claimed about 48 percent of an employee salary goes to taxes, after paying an average of 30 percent in Pay As You Earn (Paye) and also facing several other taxes in Value Added Tax (VAT) when buying commodities and getting other services.

“Unfortunately, our tax base is narrow. The authorities should have found a way to widen the tax base so that everyone pays tax. Malawians are heavily taxed and this is not healthy,” said Kaferapanjira.

According to economist Mathias Kafunda of the Centre for Social Concern (CfSC), the country’s taxes “are a price Malawians pay so that politicians can play Santa and get re-elected,” when taxes are meant for development and common good.

Kafunda, a programme officer for economic governance at CfSC, said the tax system in Malawi is generally characterised by low levels of tax collection and particularly a failure to properly tax the corporate world.

“This is demonstrated by the low revenue collection from corporate income tax, the lack of tax on capital income (which is often held offshore); these tax types would be progressive in their application, but are currently the most disappointing categories within the tax system,” said Kafunda.

The economist said generous tax incentives seem to have little impact in determining the quality of foreign investment.

“For instance, has it ever occurred to anyone as to why retailers such as Shoprite, Game, Mr Price and Spur are investing more in Zambia than in Malawi despite Zambia’s corporate tax rate being higher at 35 percent than that of Malawi’s 33 percent?” he asked.

Kafunda said the focus on tax incentives to attract industry leads to damaging tax competition between States and proliferation of low tax rates which undermine the country’s tax system.

Malawi Watch executive director Billy Banda said political parties must come in the open and tell Malawians what they have to offer on tax reforms if voted into power.

“But I think they all know they want more money to use for running government or plunder, no matter at whose expense. All you may hear, if any, is a party talking of tax reforms, but they don’t specify how they would want to do it.

“Malawians must start demanding what the political parties have to offer in all sectors such as education, health and agriculture than the usual personal attacks politicians’ vent on each other. Let them attack each other on policies, and not personalities. Let the politicians explain how different they would address a particular issue if voted into power,” said Banda.

Regarding the tax bracket, economic experts have argued that the existing tax bracket of K0 to K20 000 tax free is too low although the bracket looks wide if the minimum wage of K 8 500 is taken into consideration.

The political parties have not been explicit where they would hinge the tax bracket if given power.

Salaried employees in Malawi, who pay an average of 30 percent from their earnings, have for a long time complained of high taxes, especially because they also pay other taxes when buying essential commodities from shops.

Milk producers in December protested what they called punitive taxes on dairy products and equipment, and had argued that such taxes were suffocating the dairy industry.

The milk producers, under the Malawi Milk Producers Association (MMPA), urged government to make deliberate efforts to make the industry grow.

Malawi Economic Justice Network (Mejn) and Action Aid in December also faulted Malawi’s tax system which they argued was subsidising foreign, companies and the two organisations launched a campaign on tax reforms.