Malawi’s tax regime is regressive and more oppressive on the poor due to numerous indirect taxes on basic needs and inconsiderate tax measures put in place without addressing tax disparities, research by Centre for Social Concern (CfSC) has revealed.
Among several recommendations to close the gap, the report suggests the removal of most of the indirect taxes on basic needs; an upward adjustment of the zero-rated tax band; introduction of a new tax band; and presumptive tax to be introduced on small-scale informal businesses.
“Most of the taxes are indirect, which cannot be avoided because they are included in the cost of goods, which we buy for our daily livelihoods. The taxation system is regressive, because people with high income pay less tax relative to their income and low income earners pay more tax in relation to their income,” says the report.
The research, which studied a day in the life of a Malawian taxpayer, further discloses that currently, Malawi has the highest pay gap at 106.7, meaning that the highest paid worker gets 106.7 times more per month than the lowest paid.
“Usually, the consumer pays all the taxes when he is buying goods and services. Unfortunately, most of such tax burden is borne by the poor. The poor pay most of such taxes as they use the same basic daily needs as the richer do. Effectively, this makes the tax rate for the poor more than the richer,” adds the report.
Apart from recommending a presumptive tax to the informal businesses, the report also recommends that indirect taxes concentrate on luxurious goods with most of the basic needs zero tax rated.
A presumptive tax is tax based on notional or estimated business income, or some presumed values such as tax based on turnover, assets and number of employees, wealth or a combination of various factors.
Some of the informal businesses recommended for this presumptive tax include hawkers, street vendors and businesses from residential places, minibus and taxi operators, driving schools, hairdressing salons, and informal cross-border traders.
The report further recommends that income zero tax-rated band be increased from K15 000 (about $37.50) to K45 000 (about $112.50) to increase low income earners disposable income and an extra tax band be introduced for high income earners to compensate the loss of tax income from the increased zero-rated tax band.
The proposed new tax band is 40 percent for income of more than K400 000 (about $1 000) per month while currently, the maximum tax band stands at 30 per cent for the highest income earners.
CfCS argues that freeing the lowest income earners from such a tax burden will enable them to afford and satisfy their basic things.
Meanwhile, representatives of the Malawi Congress of Trade Unions (MCTU) on Monday met President Joyce Banda where they raised issues to do with the prevailing minimum wage of K317 (about 80 US cents) per day.
But the President in a brief asked the union to utilise the public media to sensitise workers and employers to the importance of the labour union.