CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
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Malawi |
ECONOMY
In November 2002, the government introduced a surtax in its retail and wholesale sectors of the economy
Many business sectors were worried that the 20% surtax would cripple their businesses and render most basic commodities unaffordable to the average Malawian. Officials at the Malawi Revenue Authority (MRA), however, have dismissed their fears as «baseless».
During public awareness meetings which MRA officials had conducted throughout the country’s 28 districts and in the major towns and cities between April and October 2002, most traders had resisted the very idea of a surtax, saying it would cripple their businesses. John Kapito, executive director of Malawi’s Consumers Association (CAMA), had predicted that people in rural areas would suffer from inflated commodity prices imposed by unscrupulous traders, if the implementation of the extended surtax was not properly monitored at grassroots level.
Over 85% of the country’s approximately eleven million people are peasant farmers living in rural areas. MRA officials insist that the surtax which has been extended from the manufacturing sector, will not eat into anybody’s profits. They assure people they won’t have to pay more. The MRA‘s Public Relations director, Kitty Chimseu, says: «These are just fears. No business will fail to run because of the surtax. The Government has exempted from surtax most of the basic commodities such as salt, water and medical drugs, in order to cushion consumers against inflation».
The tax reform programme
The new surtax is part of the 1989 tax reform programme, which the government had embarked on, to broaden its tax base and ease pressure borne by a few sectors of the economy. It has also been introduced as part of the government’s effort to cast its tax net wider, in the wake of declining revenue due to various regional trade protocols, which centre on removing customs duty on international trade. Since 1994, Malawi has signed and ratified several free trade agreements, mainly with regional bodies such as the Southern African Development Community (SADC) and the Common Market for Southern Africa (COMESA).
An International Monetary Fund (IMF) study had placed the impact of the surtax at 2%. «People should not expect food prices to increase», says the IMF‘s resident representative, Girma Begashaw.
However, when the surtax was implemented on 1 November, the country was immediately plunged into a commodity price crisis that saw some traders in both rural and urban areas increasing their prices by 20% or more. Apart from increasing prices on taxable commodities, some traders had added surtax on some exempted commodities. Also, some unscrupulous businessmen had not registered with the MRA as being liable for paying the surtax. They have taken advantage of the crisis and are currently charging surtax, which they don’t pass on to the government’s tax collecting agency.
Under the Surtax Act passed by Parliament in 2001, only businesses in the retail and wholesale sectors with an annual threshold of over 2 million Malawi kwacha (about 24,000 American dollars) are required to register for surtax.
Effect on tourism
Malawi’s tourist industry has also warned of the surtax’s adverse effects on the tourist industry due to increases in hotel rates and other services. «The argument that increasing surtax in this sub-sector (hotels and restaurants) to 20% will have a negative effect on business, is not exactly correct because most of the items connected to the hotel and restaurant business are surtax free,» says Malawi’s Tourism Association (MTA) executive director, Sam Botomani.
However, Wallace Chiume, chairman of Parliamentary Committee on Commerce, Industry and Tourism told a gathering of captains of industry, that the government has ignored every recommendation put forward by his committee, and instead went ahead to implement the extension of surtax. He says: «We made many recommendations on amending the Surtax Bill but nothing was taken aboard. Most of the recommendations we made were shot down by the Ministry of Finance and Economic Planning».
Earlier estimates had projected that the government would raise 900 million kwacha (about 10.5 million American dollars) from the surtax during the current 2002/2003 fiscal year. However, postponement of the original implementation date from 1 September 2002 to 1 November 2002 is likely to reduce the original estimate.
Malawi’s Finance and Economic Planning Minister, Friday Jumbe, says since laws are made and can be changed, officials in his ministry will make a serious review of the surtax scheme. «I don’t want to frustrate any industry, but the fact is, surtax has come to stay. However, some areas can be changed. It was not the government’s intention to cause unnecessary panic and crisis. We have already asked the MRA to study the situation and they will make a statement on what they will do».
Let’s see what happens!