Malawian economists have warned government to tread carefully over the decision by President Peter Mutharika to struck off withholding tax on first 10 bales of tobacco smallholder farmers at the auction floors.
Mutharika made the announcement at the start of the tobacco selling season on Thursday at Kanengo auction floors in Lilongwe.
This means one tonne of each farmer’s tobacco will not be taxed.
But the president of Economic Association of Malawi (Ecama) Chiku Kalilombe said this will have a long term negative effect on the economy which depends largely on local revenue collection.
“This means three per cent of the tobacco at the auction floors will not be taxed. This can be detrimental to the economy,” said Kalilombe.
He said political statements should balance up with economic realities on the ground.
But Tobacco Association of Malawi (Tama) president Felix Thole asked the government to increase the number of the tax free bales.
“We are very happy with the decision to slash taxes on the first 10 bales. However, we are asking if the bales for free tax can be increased say to 20 or more so that the tobacco farmer benefits from his sweat,” he said.
Tobacco contributes 13% of the GDP, creates 85% of the employment and contributes 37% to the economny.