Parliament Wednesday passed the Tax Administration Bill, which attracted heated debate.
The Act indicates that any person who imports goods shall be required to pay advanced income tax at three percent of the customs value of goods for duty purposes at the port of entry into Malawi.
It further indicates that there will be a turnover tax, levied at three percent, of gross receipts of businesses and businesses should register for turnover tax if annual turnover exceeds K6 million.
However, there was pandemonium in the august House for some minutes after opposition members disagreed with one of the clauses in the tax amendment bill that requires cross-border traders to be paying an advance income tax of three percent.
Mulanje Bale legislator Victor Musowa and Shadreck Namalomba of the Democratic Progressive Party (DPP) led the opposition in standing against introduction of the tax bill.
The advance payment of duty forced Parliament to go into division, after which 72 members voted in favour of the clause while 41 voted against it.
Finance Minister Felix Mlusu said it was just a misunderstanding but some members of the House argued that the new tax arrangement would burden the common Malawian.
He argued that the government, first of all, increased the tax-free band from K1.5 million to K2.5 million, adding that the advance tax did not apply to those enjoying the tax-free band.
“It was a question of not fully understanding [the issue]; we tried to explain to them [legislators],” he said.
Meanwhile, Institute of Chartered Accountants in Malawi Chief Executive Officer Francis Gondwe has faulted both provisions, saying turnover tax will mean overpayment of tax because many small and medium enterprises (SMEs) cannot keep books of accounts.
He said, following the development, tax would look at income and not what the person spent on the goods.
Gondwe added that advance payment for goods would create a liquidity crisis in the country because it is not that goods will be sold instantly in an already liquid market.
“These goods take time before they can be offloaded to the buyers. Refund mechanisms need to be worked out in case such goods do not arrive. The government machinery is already slow with refunds; therefore, I am wondering how they will manage this,” he said.
Taxation expert Emmanuel Kaluluma has since sided with Icam in trashing the provisions, adding that lack of knowledge on bookkeeping would overtax SMEs.
“Small businesses are the ones that are going to be hit and that means people will be importing goods to the advantage of well-established businesses because they want their money out,” he said.
Economist Betchani Tchereni indicated in a separate interview that while this would curb the problem of under-declaration of income by enterprises and help the country widen its tax base to SMEs, the taxes will negatively affect the micro-economy.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.