June 23, 2011

Tax on the poor to compensate for tariff revenue loss

The decision by the Malawian government to introduce value-added tax (VAT) of up to 16.5 percent on products such as bread, meat, milk and dairy products is being blamed for losses incurred by small-scale businesses. The move comes in response to a loss of revenue due to regional trade commitments. In the 2011/2012 national budget, delivered on Jun. 3, the country's minister of finance, Ken Kandodo, announced the introduction of taxes that also include a 25 percent excise duty on used clothing, furniture and toys. The taxes came into effect straight away and wholesalers did not take long to increase the prices of goods.

Up to 60 percent of Malawi's population of 13 million lives on less than one dollar per day and it is not easy for many to afford basic necessities. Bread, for instance, is selling at prices of between 0.80 dollar cents and one dollar, depending on the quality. VAT is regarded as a retrogressive tax, especially in a context of endemic poverty, as it affects all citizens regardless of socio-economic status, which is why other countries have exempted basic foodstuffs. Before the new tax measures, the Malawi Revenue Authority (MRA), the country's tax body, imposed minimal charges, based on the quality and quantity of the goods traders were bringing into the country.

Opposition Member of Parliament Ezekiel Ching'oma has described the new tax measures as bad news for small-scale traders and big businesses. Ching'oma said in parliament that the new taxes would punish the many poor Malawians who depend on small businesses to survive. "These new taxes show selfishness on the part of government," said Ching'oma. The Malawi Confederation of Chambers of Commerce and Industry's (MCCCI) Chancellor Kaferapanjira, MCCI chief executive officer, told local media that the new tax regime would have a negative effect on business. "These new tax measures would only be acceptable in war," said Kaferapanjira.

There seems to be no immediate hope for the local traders as government remains on the prowl for more sources of revenue following a significant drop in the finances that the country's traditional donors commit towards the national budget. Over recent years up to 40 percent of the national budget has been dependent on aid.
But the past year or two Malawi's donor relations suffered greatly following accusations that the southern African country has failed to respect the human rights of lesbian, gay, bisexual and transgender people and the right to freedom of the press. Donors refuse to release up to 400 million dollars.
Malawi is in the bad books of its traditionally largest donor, Britain, following a decision by the government to expel the British High Commissioner after he criticised president Bingu wa Mutharika for "increasingly becoming dictatorial" in a diplomatic telegram. (IPS)

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