Faith based group, the Centre for Social Concern (CfSC), which focussed on the economic wellbeing of Malawians has said tax policy adopted by government in the 2013/14 national budget is retrogressive to citizens and the economy.
One of CfSC senior officer Mathias Burton Kafunda said the centre hold to the fact that governments can intervene in the labour market by altering personal disposable income via the tax and benefits system.
“This means employing a progressive tax system. Progressive taxes take proportionately more tax at higher incomes and proportionately less tax at lower incomes.
“If this is accompanied by welfare payments to those on lower incomes, any gap between high and low income earners can be reduced,” said Kafunda.
An analysis done by CfSC says government has maintained a very regressive income tax rate structure in which an individual’s average tax rate doesn’t increase with the income base.
In the 2013/14 budget government has increased the non-taxable threshold for Pay as You Earn (PAYE) tax from K15,000 to K20, 000 and the next K5,000 will still be taxed at 15 percent whilst the excess will be taxed at 30 percent.
“In so doing, the 2013/14 budget is not ensuring that the marginal tax rate (or the rate imposed on the last income earned) increases as the income bands rise, suggesting that the rate structure is also not designed to address the income inequalities in the country; hence the burden of the tax is largely on the poor,” the centre said.
They argue that taxation policy towards inequality and poverty should be influenced by the desire to achieve both horizontal and vertical equity.
“The consequence of such a policy choice is that disposable income is concentrated at the top, and when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy,” CfSC said.
Taxes and other local revenue are expected to contribute the proposed K600 billion national budget.