The new Pay As You Earn (Paye) bracket of 40 percent for incomes of more than K6 million per month, has come under spotlight with analysts arguing it is counter-productive as it punishes persons in employment.
Tax analyst Misheck Msiska, in a commentary on the measure, said this is because taxpayers in employment are easy to catch while persons carrying out their own businesses can evade the tax system and go scot-free.
He said: “It is possible that the high tax bracket was introduced to recoup the loss incurred on raising the tax threshold for those earning lower income, the likely result is that there will be salary restructuring by employers to avoid the high tax bracket.”
In his 2021/22 budget presentation statement Minister of Finance Felix Mlusu said in introducing the new brackets, government considered that a good tax system needs to conform to the principles progressivity or vertical equity in those high-income earners should pay more taxes.
He said government introduced the two new Paye brackets of 25 percent for incomes between K100 000 to K1 million per month and of 40 percent for incomes of more than K6 million per month to promote distribution of wealth in the country and increase disposable income for all low income earners.
But Msiska, who is the managing director at MM Tax Advisory Services, argued that the likely result is that there will be salary restructuring by employers to avoid the high tax bracket.
He said: “Many employers are likely to resort to providing fringe benefits instead of the ‘clean wage’ which is prevalent at the moment, and hence the expected tax revenue benefits might not be fully realized.”
Meanwhile, the Employers Consultative Association of Malawi (Ecam) has also cautioned that some tax measures will likely push the employers to lay off some of its employees as they are struggling in the tough economic environment.
Ecam executive director George Khaki in a recent interview with Business News said some tax measures including the increase in minimum wage would put more pressure on employers.”
However in its 2021/22 national budget commentary, the Ecam welcomed the revision of the Paye tax brackets.