Revenue Target, New Tax Measures Announced

The Malawi Revenue Authority (MRA) will be required to collect K1.116 trillion in tax revenues in the 2020/21 financial year.

Finance Minister Felix Mlusu announced the revenue target during a presentation of the 2020/21 national budget in Parliament on Friday, September 11, 2020

He said Government has projected total revenue and grants for the 2020/2021 financial year at K1.435 trillion, representing 20.1 percent of GDP and a 6.0 percent decrease from the 2019/2020 approved figure.

“Domestic revenues have been projected at K1.179 trillion representing 16.5 percent of GDP. Of this amount, K1.116 trillion is tax revenue while K63.1 billion is other revenues,” he announced.

 

He said Government has projected total expenditure at K2.190 trillion, representing about 30.6 percent of the country’s GDP and almost 23 percent increase from the 2019/2020 preliminary expenditure outturn.

 

The Finance Minister also announced new tax policies on Income Tax, Value Added Tax (VAT), administrative measures, trade agreements and international taxation.

As far as Income Tax is concerned, Mlusu announced the increase of the Pay as You Earn (PAYE) tax-free threshold from K45, 000 to K100, 000 per month.

Mlusu said Government realized the need to increase disposable income for salaried employees and enhance their purchasing power.

 

“Government is aware that this adjustment is huge and to minimize its impact on the base for Personal Income Tax, the 15 percent middle bracket under the Pay As You Earn regime has been removed,” he announced.

 

Furthermore, Mlusu announced the increase of the Withholding tax threshold for casual labour from K15, 000 to K35, 000 per transaction.

 

“Government recognizes the need to improve the welfare of the people, especially those that are engaged as casual labourers and earn modest incomes for basic needs,” he said.

 

The Finance Minister also announced the introduction of 20 percent Withholding tax on winnings from betting and gambling transactions including lotteries following increased participation in betting and gambling transactions.

 

Turning to VAT, Mlusu announced the introduction of 16.5 percent VAT on refined cooking oil, which was VAT-exempt, and manufacturers were not able to claim tax refunds on their input VAT.

“This measure will now allow manufacturers to claim input VAT. Madam Speaker, I wish to inform this August House that local manufacturers of refined cooking oil continue to benefit under the Industrial Rebate Scheme where raw materials are imported without payment of duty.

“In addition, under the Surcharge Tariff regime, the local manufacturers are protected from adverse competition. In this regard, arbitrary price increases especially by local manufacturers reflecting the full VAT adjustment on the refined cooking oil is not expected,” he said.

As far as administrative measures are concerned, the Finance Minister announced the amendment of the Taxation Act in Section 2 under definition for “Amount Realized” to also include “any contingent amount realized at the time of disposal” to provide clarity and protect the tax base.  

He also announced that Government had reviewed and amended the provision under Section 15(1)(e) of the Taxation Act regarding transfer of assets from an Individual to a Trust, to restrict the transfer to a Trust in which the Transferor is a Settler of the Trust.

 

“This administrative measure has been done to provide clarity especially under the Capital Gains tax and to ensure that the provision is hedged from abuse,” he said.

 

On tax treaties and international taxation, the Finance Minister announced that the Ministry of Finance is in the process of developing a Tax Treaty Policy for Malawi to ensure existence of a guided negotiation framework that promotes investment and trade while safeguarding national interest.

 

The Tax Policy measures will become effective 1st October, 2020 once the relevant Amendment Bills under the Taxation Act, VAT Act and the Customs and Excise Act are deliberated and passed by Parliament.

 

BY WADZA OTOMANI