Lilongwe-based Centre for Social Concern (CfSC) has proposed an increase in the zero tax-band threshold from the current K20 000 to K35 000 in the forthcoming 2015/16 national budget.
The faith-based institution said this as part of its pre-budget consultation input into 2015/16 budget which Finance Minister Goodall Gondwe says will be difficult to sell to all Malawians including members of Parliament (MPs).
CfSC Programme Officer for Economic Governance Mathias Burton Kafunda, said it is imperative for government to employ a progressive tax system in the 2015/16 budget which entails taxing more high income earners and at the same time proportionately tax less lower income earners.
“We propose to government to raise the non-taxable bracket from the current K20 000 to between K30 000 and K35 000.The taxable amount of the 15 percent bracket must be increased from the current K5 000 to between K20 000 and K30 000,” Kafunda said.
In the 2014/15 budget, government increased the zero tax band threshold by K5 000 from K15 000 to K20 000.
Kafunda also suggested the reintroduction of a fourth income bracket of 35 percent in Pay As You Earn (Paye).
Added Kafunda: “Top marginal tax rate in the range of 35 percent would decrease both income and wealth inequality.”
He said the move could also bring in more money for the government and increase ‘everyone’s well-being’ and even those subject to the new, much higher income tax rate.
“Raising the zero-tax bracket can also be a bargaining tool for government where instead of the usual annual pay hikes, it could negotiate with employees for just a raise in the non-taxable bracket,” said Kafunda.
Commenting on the value added tax (Vat), Kafunda said indications are that as a country, there is a large reliance on Vat as a means of collecting more domestic revenue for government operations.
But Kafunda suggested that overreliance on Vat revenues means that policy-makers are balancing state budgets on the back of the very poorest taxpayers.
“It is time that the national budget strategises to ensure that other economic sectors too are contributing their fair share to resource envelope.”
Treasury spokesperson Nations Msowoya welcomed CfSC proposals into the 2015/16 budget but declined to comment on the suggested figures, saying government, through the finance minister, is currently soliciting input from a wide-spectrum of stakeholders.
