VAT on basic necessities choking the poorest
This week the Malawi Revenue Authority (MRA) has proudly been announcing that the Amendment Bill to the Value Added Tax (VAT) Act became law on August 19 2016. VAT is a tax on consumption expenditure that is levied on the “value added” that has been created at various stages in the production and distribution chain. Value added is the difference between a business’ purchases of inputs and sales output.
The amendment to the new VAT Act became effective on October 1 2016. And the new standard rate of 16.5 percent has been introduced on such basic necessities as tap water produced by water boards, ordinary bread, newspapers, magazines, periodicals, journals, laundry soap and milk. By the way, consumers already pay VAT for using the highly rationed Electricity Supply Corporation of Malawi (Escom) power.
I have a few problems with VAT on such things as tap water, ordinary bread, laundry soap and milk to say nothing about newspapers, periodical and magazines.
Newspapers have always been a target of draconian laws by the Democratic Progressive Party (DPP)-led government which has never been a friend of the media especially the print media. This is because the media (as the fourth estate) has been doing a good job of providing checks and balances on government and exposing its excesses.
Readers will recall the Amendment of Section 36 of the Penal Code during the late Bingu wa Mutharika administration that empowered the Minister of Information to willy-nilly ban publication of any newspaper that in his or her judgment was deemed in bad taste. The media and its friends—including donors—vehemently fought the government over this issue. But the problem was only solved with Bingu’s demise. The new administration of Joyce Banda in 2012 quickly re-amended the atrocious amendments.
The second DPP-led government of Peter Mutharika has not only failed to enact the Access to Information Bill which it promised to do in its manifesto, it has also silenced all vocal non-governmental organisations (NGOs) fighting for the welfare of the media and people’s rights save for one Billy Mayaya. One wonders really whether the once vocal Voice Mhone of this world, for example, were really fighting for the common good of Malawians during the JB administration.
And so the media is now left to fight its own battle. The DPP-led government has also slapped newspapers with VAT to make them more unaffordable to the majority of the people. In short, the media is back to where it was in 2012 faced with a media unfriendly government bent on killing it.
In justifying the introduction of VAT on basic necessities such as tap water, bread, ordinary milk, laundry soap and others, Finance Minister Goodall Gondwe said the idea was two-fold: to increase the tax base, but also put a stop to a situation where the poor are subsidising the rich.
Surely, there was a better way of doing this. One can argue that conversely, by introducing VAT on basic necessities, government is implying that it is a lesser evil to punish the poor than to subsidise the rich. With this VAT on basic necessities, the poor will suffer more than the few rich who Gondwe says government is targeting.
Going by the Parento principle, in any establishment the rich are always 10 percent if not fewer of the population. And to say the least, potable (tap) water, laundry soap, ordinary milk are very basic things sought by over 80 percent of the people which government is better off not taxing if it really has their welfare at heart.
The last nail in the coffin was hammered last week by the President who directed on his return from his extended stay in United States after the UNGA—where he was enjoying robust health—that Agricultural Development and Marketing Corporation (Admarc) should start selling maize at K15 500 per 50 kg bag of maize from K5 500 per bag, an increase of 127 percent. Like slapping VAT on basic necessities, it is the poor of the poorest who will suffer most with such a policy.
