Why is government punishing and suffocating the very goose that lays the eggs, which feed the more than 16 million inhabitants of this country?
From the look of things, Capital Hill is hell bent at ensuring that the engine that drives the economy—the private sector—ceases to function.
First, Capital Hill continues to cling to up to K100 billion in arrears it owes the private sector, citing a paucity of fiscal space to pay up and the endless auditing of the arrears as the reasons for the unjust holding of payments to companies that supplied goods and services to government Ministries, Departments and Agencies (MDAs).
Even the little that government paid them, some K50 billion, was in form of zero interest coupons from which banks take away nearly a third of the value.
It is a lose-lose situation for businesses that dealt with government. Most of these firms owed by government are struggling mightily, with some scaling down their operations while the unfortunate ones have gone under.
This is a private sector that is already reeling from various constraints to growth, including an opaque exchange rate management regime no one has put their fingers on, terrible public policy making, weak implementation and nearly non-existent public investment in infrastructure crucial to facilitating growth.
Then there are broader macroeconomic problems—including high inflation and interest rates and an unstable local currency.
When you add the massive corruption in procurement that raises the cost of doing business; the terrible utility provision in terms of water and electricity, you end up with a private sector besieged by a government that depends on the very businesses it is suppressing, to survive.
And now I hear that Treasury owes the private sector not just the arrears, but K16 billion more in value added tax (VAT) refunds dating back to 2014, according to the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira.
According to Kaferapanjira, the money owed is affecting the operations of the private sector as it is part of its working capital.
With government clinging to their operating capital, companies have to borrow expensively from commercial banks to keep their businesses going, thereby accumulating more costs.
Is that fair?
“One can conclude that in reality there is no concern for the financial health of the private sector when the sector is being denied what belongs to it,” complained Kaferapanjira.
Why should the Malawi Revenue Authority (MRA) go about boasting that it has beaten revenue targets after squeezing businesses—even using garnish orders and closure of business premises—when it owes the private sector so much money, some of which can be used to settle their tax liabilities?
Or should businesses also go and close MRA offices? Or better still, should they boycott paying taxes until they get their refunds?
Clearly, while VAT has become a major source of revenue for government, it looks like the tax is under-serving VAT able organisations, especially when it comes to input VAT.
To me it looks like there was not adequate preparation before this tax was introduced.
I can’t help but wonder whether a feasibility study was done to identify and deal with potential cascading and cumulative effects of the tax.
Indeed, has the Revenue Division in the Ministry of Finance, Economic Planning and Development done any assessment on the sustainability of input VAT and its beneficial effects?
Has there been an evaluation of its beneficial effects on prices, output and consumption?
If these have not been done, Treasury must ensure that it is done and the results released for all to see.
Otherwise, this tax could have serious macroeconomic effects apart from killing businesses and, by extension, jobs.