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Facing our realities - Malawi budget speech 2002/03

13. Tax Policy measures
  1. Mr. Speaker, Sir, in addition to the expenditure control measures that I have outlined, Government is going to introduce some tax measures in the 2002/2003 fiscal year.

  2. But before I highlight the measures, please allow me to once again express my concern on the low tax compliance we are experiencing as a country. I have mentioned this in a number of fora with the business community and during the pre-budget consultations. There is the pervasive view from the public at large that payment of taxes is optional. As I speak now a lot of institutions, public and private, owe Government large sums of money due to non-remittance of collected taxes. Mr. Speaker, Sir, this is a pure act of theft and punishable by applicable laws.

  3. Mr. Speaker, Sir, Honourable Members, there are also individuals and organisations that are simply not honouring their tax obligations. Mr. Speaker, Sir, I have in mind the many business operators in the country as well as employees of some international organisations, NGOs and small and medium-scale enterprises that are currently not giving to “Caesar what belongs to Caesar”. The numerous services that Government provides is financed by tax revenues. The irony is that the same people owing Government are quick at criticising Government for lack of better public facilities or delayed funding. Where do we honestly think Government is going to get money to run its operations?

  4. I have, therefore, instructed the Malawi Revenue Authority (MRA), to be vigilant in collecting due revenue. According to the Law, it shall collect all due taxes from any taxable person or institution and any taxable goods and services-“Give to Caesar what belongs to Caesar”. Stiff penalties shall be instituted to all those who will not be compliant with tax laws. In addition, audit firms that connive with tax payers will be severely punished and removed from recognition for tax computation. The MRA shall enjoy full support of the Government where collection of taxes is the matter.

  5. This year, as Government continues with tax reforms, the objective will be one of rationalising and broadening the tax base to achieve a tax structure that is simple, efficient and equitable. Emphasis will be on consolidating our past efforts in ensuring that the various tax policy measures announced in the last few years are effectively and efficiently implemented. It has always been my belief, Mr. Speaker, Sir, that we should know where we are coming from to get us where we are going. It is, therefore, important to first of all assess the impact of the measures implemented in the past in order to assist us plan our next steps. It is for this reason that we think we should emphasise on tax enforcement to improve tax compliance before embracing new policy changes.

  6. Mr. Speaker, Sir, in order to achieve the objectives set for the 2002/2003 Budget, the following tax policy measures will be implemented:


    1. There shall be an exemption from the 10 percent withholding tax on dividends distributed by subsidiary companies to mother companies. This is a rationalisation measure aimed at ensuring that there is no cascading of tax among companies with integrated structures.

    2. Except where an agreement exists between an organisation and the Government of Malawi, Malawian employees of international organizations, NGOs and foreign missions will be required to pay personal income tax with effect from July 1st, 2002. Mr. Speaker, Sir, according to the Laws of Malawi, employers are obliged to collect pay roll taxes from their employees as an agent of the Malawi Government. We therefore urge the employers concerned to respect our laws and collect taxes on behalf of government.

    3. The threshold at which provisional tax begins to affect individual taxpayers will be increased from MK30, 000.00 to MK36, 000.00. This is a rationalisation measures aimed at standardising the provisional tax on individual taxpayers with the zero income tax bracket that now is at MK36, 000.00 per annum.

    4. The annual value at which a pension is commuted will be increased to MK36, 000.00. This measure is aimed at allowing pensioners to receiving a meaningful monthly pension amount commensurate with the value of money today.

    5. Penalty for late submission of accounts or returns to Malawi Revenue Authority (MRA) will be increased from MK1, 000.00 to MK50, 000.00. The measure is aimed at encouraging people to be submitting returns in time in accordance with applicable laws.

    6. In order to reduce income disparities between the rich and the poor, an additional personal income tax bracket for taxable incomes in excess of K100,000 shall be introduced and the marginal tax rate applicable shall be 40 percent. The rest of the personal income tax brackets and rates will remain unchanged.

    7. Evasion of Income Tax will be made a criminal offence.


  8. Mr. Speaker, Sir, the House may recall that in October 2001, Section XIIA of the Customs and Excise Act was repealed in order to have a stand alone Surtax legislation. This was done to allow for a smooth implementation of the extension of Surtax from manufacturing stage to wholesale and retail stages. I launched the Tax Payers Education and Public Awareness campaign in April 2002 so that the public is informed and prepared for the extension of Surtax. Let me once again emphasise that this is not a new tax. It is just a mere extension of a tax that already existed. Previously this tax was being collected at manufacturing stage only and this was disadvantaging local manufacturers against competing imports.

  9. Mr. Speaker, Sir, I will now announce Surtax rationalisation measures that that will become effective from 1st September 2002.

    1. Surtax will be extended to the wholesale and retail stages at the rate of 20 percent. As well as removing disincentives to produce among local manufactures, the measure is a drive to expand the tax base.

    2. Surtax on exercise books will be taxed at zero percent. This measure is aimed at increasing accessibility of learning materials to schoolchildren.

    3. In order to rationalise the surtax rates in line with the new Surtax Act , all concessional rates of surtax of 10 percent under Customs Procedure Codes 442, 444 and 476 will be increased to 20 percent.

    4. Salt will be taxed at zero percent as it is considered to be a basic commodity.

    5. Rentals on commercial properties will be subject to surtax.

    6. There will be 20 percent surtax on non-life insurance.

  10. Mr. Speaker, Sir, please allow me to sound a warning to unscrupulous traders out there who will want to cash in on the extension of Surtax and unjustifiably increase their prices. According to the studies that Government conducted prices should not rise by more than 5 percent because in paying output surtax, traders will be crediting surtax paid on inputs. I, therefore, wish to appeal to the business community not to overcharge.


  12. Mr. Speaker, Sir, allow me now to turn to Customs and Excise measures which will become effective from mid-night tonight:

    1. i. Excise duty on alcoholic beverages will be increased from 5 percent to 15 percent on opaque beer, from 35 percent to 45 percent on cane spirit and from 55 percent to 65 percent on other alcoholic beverages.

    2. Excise duty will be increased from 5 percent to 10 percent on passenger carrying motor vehicles with engine capacity not exceeding 1000cc, from 15 percent to 20 percent on engine capacity exceeding 1000cc but not exceeding 1500cc, from 25 percent to 30 percent on motor vehicles exceeding 1500cc but not exceeding 1799cc, from 5 percent to 20 percent on four wheel drive motor vehicles of engine capacity exceeding 1799cc but not exceeding 1999cc, from 25 percent to 35 percent on other motor vehicles exceeding 1799cc but not exceeding 1999cc, from 50 percent to 60 percent on four wheel drive motor vehicles exceeding 1999cc but not exceeding 2999cc, from 65 percent to 80 percent on motor vehicles of 2999cc to 3999cc, and from 65 percent to 100 percent on motor vehicles with engine capacity exceeding 3999cc.

    3. 20 percent excise duty will be introduced on edible vegetables and tubers, poultry products and meat derived from cattle, swine, goat, sheep and similar animals.

    4. A 20 percent export duty on raw, unprocessed and unmanufactured tobacco will be introduced. This measure is aimed at encouraging processing of raw tobacco within the country.

    5. Import duty on textiles and fabrics coated with gum of amylaceaus substances will be reduced from 10% to 8%. This is as a result of the Trade agreement Malawi signed under the Mozambique, Malawi, Tanzania and Zambia (MMTZ) and the Botswana, Namibia, Lesotho and Swaziland (BLNS) countries.

    6. Using the Customs and Excise duty rates applicable on petrol, diesel and paraffin, a fixed amount of tax revenue will be determined at the beginning of the fiscal year that will be regarded as a minimum throughout the fiscal year. This is aimed at stabilising tax revenues.


  13. Mr. Speaker, Sir, in addition to the tax policy measures I have outlined, there will be administrative measures which Government will implement to increase tax enforcement by the MRA. These are as follows:

    1. In order to ensure that Ministries and Departments are current with pay roll and withholding taxes, funding for pay roll will only be made when previous month’s taxes have been remitted to the Malawi Revenue Authority (MRA).

    2. The period in which goods are allowed to stay in temporary stores before duty is paid will be reduced from 28 days to 10 days. This measure will come into effect on 1st October 2002. The Malawi Revenue Authority (MRA) and SGS are instructed to process documentation expeditiously.

    3. Exporters other than producers or manufacturers of the goods being exported will pay surtax and claim surtax upon submission of adequate documentation.

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