The World Bank has warned that the introduction of a duty-free week for imports not exceeding $3,000 (about K2.4 million) once a year is likely to only benefit larger, wealthier businesses that can plan for it.
In its Malawi Economic Monitor released on Friday, the bank says the arrangement is difficult to administer and prone to abuse.
Presenting the 2021/22 National Budget, Finance Minister Felix Mlusu said the duty-free week is intended to boost the growth of small businesses and to reinvigorate the economy.
But the Bretton Woods institution says this could only benefit wealthier and larger businesses while further reducing tax intake.
The World Bank has also said the government would enforce and avoid abuse on the provision where it has allowed duty free importation of vessels for transportation of goods or people for the tourism industry.
“The government has introduced a wide range of tax measures in the FY [Financial Year] 2022 budget, many of which will reduce its income tax intake. Many are intended to address inefficiencies and raise appropriate thresholds or to promote local value-addition or import substitution.
“However, many others support wealthier groups and are regressive, and could add to the complexity of tax administration and lead to abuse,” the bank says.
On Pay As You Earn (Paye), the Mem says one year after doubling the zero tax threshold from K45, 000 to K100,000, which had a clear impact on the tax revenues, the government has reduced taxes on wage earners between K100,000 and K1 million per month, from 30 to 25 percent.
It says in addition, Capital Hill has introduced a income tax bracket of 40 percent for earners above K6 million per month.
“While this does make the income tax more progressive, this follows the substantial tax reduction in the prior year at a time when the government has a clear need to strengthen tax revenues,” the Mem reads.
Speaking when he wound up debate on the 2021/22 National Budget last week, Mlusu said the Malawi Revenue Authority had put in place all the necessary measures to safeguard the success of the Duty-Free Week and stake out any perceived intentions to abuse the initiative.
Mlusu said, apart from introducing the duty-free week, the Tonse Alliance government had also increased the threshold for the Comesa Simplified Trade Regime from $2,000 to $3,000, thereby giving more opportunities to our people, especially women and the youth who are operating cross border businesses.
“The duty-free week will allow every Malawian to import items worth $3,000 duty free. These items do not need to be produced in Comesa region only but anywhere in the world,” Mlusu said.