Lipenga presents Malawi’s ‘recovery’ budget, punitive taxes removed
Malawi’s Finance Minister Ken Lipenga on Friday heralded a national budget for 2012 and 2013 as one designed to address these challenges and put the economy onto a path of sustained recovery.
Delivering the budget statement in Parliament in the capital Lilongwe, Lipenga told the House that he tabled “ an austerity Budget”.
He said: “ Some of the reforms will be painful. But we have been living beyond our means and have to take the difficult decisions that are necessary to stabilize the economy. This will lay the foundation for sustainable economic growth in future.”
In his budget speech, the Finance Minister announced another of measurer for economic growth which included removal of many punitive taxes on the poor.
He said the Customs and Excise Tax measures will be effective from midnight tonight (June 8) whereas the Value Added Tax (VAT) and all other Income tax measures will become effective on 1st July, 2012.
“Mr. Speaker, Sir, I wish to report that in this Budget, Government has removed the Minimum Tax Based on Turn Over which was introduced in the 2011/12 Budget and was deemed to be anti-developmental,” said Lipenga.
Lipenga also informed that government has removed taxes on gains from sale of shares that are held for more than one year to encourage long term investments specifically in shares that are traded on the stock exchange market.
The Minister said government has decided that all social contributions towards construction of hospitals, schools and sponsoring school sports development activities will be tax deductible up to 50 percent.
The country’s purse keeper said government acknowledge the impact of recent devaluation and its inflationary effects in the economy.
“ In view of this, Government has increased the zero percent threshold for PAYE from MK12, 000 to MK15, 000 and also increased the 15 percent bracket from MK3, 000 to MK5, 000 whilst the excess will be taxed at 30 percent.
“ In addition, the zero percent threshold for withholding tax on payment of casual labour has been aligned to the zero percent threshold for Pay As You Earn (PAYE). As such, the withholding tax payable on casual labour will only apply to payment for casual labour on income in excess of the zero percent threshold,” he said.
Taxation of Pensions
The Minister informed the House that Section 13 in the Pensions Act on taxation of pensions has been amended to make reference to the Taxation Act.
“ In view of this, Section 13 of the Pensions Act will now be made effective as amended. The Taxation Act has also been amended to introduce a new structure for taxation of pensions. The amendment has been done such that contributions by the employees will be net of taxes and contributions by the employer will be deductible up to 15 percent of the employee’s annual salary while earnings from the pension investments will be taxed at a reduced rate of 15 percent,” he said,
He said the pension benefits that accrue to the pensioner will be exempted from taxes.
“This has been done to ensure that pensioners have more disposable income at retirement. “
He said government has increased the rate of corporate tax paid by cell phone operators from 30 percent to 33 percent .
VAT measurers
The Finance Minister said in order to attract investment, Value Added Tax (VAT) on machinery has been removed.
VAT on Financial services has been removed in line with the principle of financial inclusion with a view to promoting a savings’ culture.
VAT on Newspapers and internet services have been removed “to allow Malawians access information at affordable prices.”
Government has also removed VAT on bread and asked bakers to reduce the prices of bread.
“ Mr. Speaker, Sir, the cost of bread has substantially increased in the course of the year and this is partially on account of the taxes that were introduced on standard bread in the 2011/12 budget. I wish to indicate that Government has now removed VAT on bread. In view of this, we implore our colleagues in this sector to reduce the prices of bread in response to this policy measure,” he said.
Customs and Excise Tax Measures
Lipenga said government has reviewed the excise tax regime in Malawi in line with best practice and also aligned to regional rates in order to curb smuggling.
“We believe this will culminate into increased employment and production for the local and export market and the improvement of other forms of taxes.”
He said the reviewed excise tax regime entails that some products will be reduced to zero while others will be adjusted in line with the regional rates within SADC and COMESA.
Lipenga said the details of the revised excise rates will be published in a Government Gazette Notice.
Among others, Government has removed excise duty on second hand clothes and textiles.
Government has however increased Excise duty on alcohol packed in sachets and plastic bottles because alcohol abuse by minors continued to increase at an alarming rate.
“It is in this regard, Government has increased excise duty rate to 250 percent on alcohol sold in sachets and plastic bottles.”
Customs Procedure Codes-
He said government has reviewed some of the Customs Procedure Codes (CPCs) under the Customs and Excise Tariffs Order.
“CPC 430 has been reviewed and returning residents will now be allowed to clear duty-free motor vehicles for personal use provided they have owned and used the motor vehicle for a period not less than 12 months whilst outside Malawi.,” he said.
“ We have noted that this provision has been abused and in order to reduce the malpractice associated with this provision, Government has decided that duty be paid on disposal of such motor vehicles and that the provision will only be enjoyed by a qualifying beneficiary once in every five years. “
He however said this CPC does not cover buses, minibuses, pickups and any other commercial vehicles.
In addition, Government has also included diagnostic and laboratory reagents under CPC 405 which covers goods for medical use to be imported duty free by Health Institutions.
Lipenga said in the 2011/12 Budget, Government introduced VAT on water supply by Water Boards and this necessitated the introduction of VAT on goods imported by Water Boards under CPC 488. This was reversed but the VAT still applied on the goods imported by Water Boards.
“ In order to align the VAT structure, Government has removed VAT on Goods imported under CPC 488. Government has also introduced a new CPC to allow duty free importation of electronic fiscal devices.”
He also said Section XXII of the Customs and Excise Tariffs Order has been reviewed in order to guard against abuse when privileged persons and organizations import motor vehicles.
“ A procedure has been developed where privileged persons and organizations will now only be allowed to import directly or purchase motor vehicles from supplier’s ex-bond and not from open stock. I wish to point out that no refund of duty shall be paid on claims made by privileged persons and organizations that choose to purchase motor vehicles in Malawi on which duty has already been paid.”
Government has removed all taxes currently existing on big buses of a seating capacity of more than 45 passengers (including the driver).
Lipenga said the budget he has presented is designed to promote sustainable economic growth.
“This Budget is, in my view, fiscally responsible; it is also socially progressive and it provides important safety nets and safeguards that will mitigate the adverse impacts of our recent currency adjustment on the most vulnerable segments of our population,” he told the house.
He said “ this is a moment of optimism and hope; it is also a moment to strengthen our resolve and courage to see through this reform programme.”
Lipenga said Malawi faces the challenges but that they “must be faced and overcome.”
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