Treasury has challenged critics that it has the muscle to meet targets on projected revenue and grants to finance the proposed K1.7 trillion 2019/20 fiscal plan.
Ministry of Finance, Economic Planning and Development spokesperson Davis Sado was reacting to scepticism from economic experts on where government will find the money to implement the budget.
He said: “We have enhanced the capacity of MRA [Malawi Revenue Authority] to ensure that there is tax compliance so that we are not losing out tax revenue. In addition, we have looked into some measures of how we can expand the tax base without necessarily burdening Malawians.”
Sado said government is banking on the review of various user fees and charges proposed in the budget, which he will unleash a good chunk of domestic revenue in form of non-tax revenue.
He said the revenue policy measures in the proposed budget are aimed at strengthening domestic resource mobilisation and management systems, promoting domestic and foreign investment, encouraging investment in agriculture and promoting manufacturing and value addition.
Sado dismissed the claim by Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe that the fiscal plan is not scrutinised monthly, arguing there is a full-fledged division within Economic Planning and Development Department responsible for budget monitoring and evaluation.
He said: “But also within Treasury, we have a budget division and we also have a monitoring unit, which monitors the budget implementation.
“In addition, ministries, departments and agencies [MDAs] have to submit monthly reports on how they have utilised budget resources for that particular month.”
Some economic experts have argued Treasury could be forced to revise downwards the financial plan during mid-year as has been the case every financial year, citing that the assumption that revenue and grants will increase by 26.1 percent from the 2018/19 approved amount of K1.3 trillion “is quite ambitious.”
In the proposed 2019/20 fiscal plan presented in Parliament in Lilongwe on Monday by Minister of Finance, Economic Planning and Development Joseph Mwanamvekha, total revenue and grants are projected at K1.6 trillion, representing 25.1 percent of gross domestic product (GDP). This is an increase of 26.1 percent from the 2018/19 budget.
In the proposed budget, described by Mwanamvekha as “pro-poor”, grants are projected at K150.1 billion, representing 2.4 percent of GDP and comprises K107.4 billion from international organisations and K42.7 billion from foreign governments.
Some economists have questioned the optimism by government regarding where the resources to finance the 2019/20 National Budget would come from in view of a tough economic environment that may lead to under-collection of revenue by MRA.
Their argument is based on indications that MRA is already struggling to collect various forms of business taxes in the wake of the ongoing political impasse that has paralysed economic activities.
“There is that assumption that tax measures will perform well going forward, but tax measures are dependent on economic growth rate. But for sure, government is in a tight situation. In our view, we would have wanted them to be as realistic as possible and probably also be modest in the estimations,” said Kalilombe.
He added: “The trouble with our budget process or expenditure process is that we are not sure whether we have a monitoring situation apart from the budget review that happens half a year. But do they check monthly to see where we are with the revenue against expenditure so that they make changes on the expenditure side?”
Weighing in on the matter, Malawi Economic Justice Network (Mejn) executive director Grace Kumchulesi said the assumption that revenue and grants will increase by 26.1 percent from the 2018/19 approved budget of K1.3 trillion “is quite ambitious.”
She said: “Government might resort to borrowing again, blowing out the domestic debt which is already burdening citizens.”
On his part, Blantyre-based tax expert Emmanuel Kaluluma said what is worrying is that some votes become completely exhausted within four to five months of implementation.
The 2018/19 budget was revised downwards at mid-year by K25 billion from K1.454 trillion to K1.429 trillion, on account of non-disbursement of the K60 billion budget support by the World Bank, among other factors.
At the time of the budget formulation, Treasury assumed a disbursement of K60 billion from the World Bank, but later admitted that such budget support would not be factored in.
This, therefore, forced government to slash the approved estimate of the inflow of revenue and grants at K1.249 trillion to K1.173 trillion.
Some of the tax measures that the budget has proposed include introduction of carbon tax on vehicles by a range of K4 000 to K11 500 per-annum, the introduction of one percent withholding tax on non-bank mobile money transaction based on transaction amount, upward adjustment of rental income tax from 15 percent to 20 percent.
Overall, the deficit in the 2019/20 fiscal year is estimated at K155.9 billion or 2.5 percent of GDP, which also represents a reduction of about 51.3 percent from the 2018/19 preliminary actual budget deficit outturn of K320.2 billion.
The projected deficit is expected to be financed by net foreign borrowing amounting to K109.7 billion and a domestic borrowing of K46.1 billion.