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My Take On It: VAT and high tax system not conducive to sustainable economic, growth


So, Joseph made it a law for the land of Egypt that one-fifth of the harvest should belong to the king. This law still remains in force today. Only the lands of the priests did not become the king’s property. – Genesis 47:26

As long as Malawi remains a landlocked country, imposing the Value Added Tax (VAT) on locally made products and businesses, the country will remain impoverished with local players ladened with a government-imposed inability to make a serious and persistent contribution to local development. Truth be told, the VAT is a lazy way for governments that levy the VAT, to make money. For landlocked Malawi, the VAT is bamboozling the local industry enterprise sector.

Minister of Finance Felix Mlusu may be inclined to defend the new protocols on the VAT and say it is a great and needed way to raise funds for vital government projects. And immediately many Malawians are reminded of how the novel and appreciable MKw1 levy placed on fuel prices led to millions of kwacha sitting in the bank, ready for famine. Very biblical indeed!

The fuel levy was a great forward-looking strategy for averting catastrophes such as famine or other disasters. It boosted government reserves with the new-look revenue authority and other revenue-creating entities such as the Malawi Communications Regulatory Authority (MACRA) and the Malawi Revenue Authority (MRA). Sadly, bad management, misappropriation of funds, and political tinkering with the collection kitty have made Malawi go on the poverty twirling swirling Ferris wheel.

But from the start, the VAT was simply something that was a horrid idea that has gone from bad to badder, to baddest. To many older Malawians, the VAT has simply been the old colonial government hut or head tax. It took people’s hard-earned money and gave very little in return.

During the 2020 Fresh Presidential elections, the Tonse Alliance group promised to create one million jobs. While it would be folly to expect that the Tonse Alliance Government alone will create one million jobs, but expectations are high from the captains of industry that the administration will create an environment that will make it possible for local investors to invest resources into their businesses that would inherently increase employment levels.

“It is an uphill climb being a businessperson in Malawi. You either have to polish politicians boots to get government contracts or face the music of stiff competition with foreign investors,” one captain of the private sector laments.

He bemoaned the fact that while local businesses are charged the VAT, the government gives foreign investors tax holidays that enable them to easily compete with local manufacturers. The local business manager recounted how in the old days, imported goods used to be more expensive than locally manufactured products.

“Today, the story is reversed: imported products, especially those from China, are cheaper than local goods. This is all thanks to the VAT,” he said.

“If you are a Malawian, you open up a business, you are simply bank-rolling the Government’ and instead of thanking you, your government thanks to the foreign investor, by having created an environment in which he competes with the VAT-strapped local investors. It’s a lose-lose-lose situation.”

He pointed out that the unhealthy and uneven playing field must be leveled so that Malawians can establish industries in their own country, on an equal foot with other investors.

Why should the government give the foreign investor a tax holiday through tax incentives? The foreign investors are here for a short while, while I am here for life. I am a  citizen of Malawi for life The government should be pandering to my wishes and desires, instead of protecting foreigners who are like flowers in the wind; they are here today, gone tomorrow!” another businessman said.

For sustained poverty reduction (through employment creation), sustained growth and development, like its counterparts on the African continent, Malawi must have a middle ground on which to operate to ensure the country gets the direct foreign investment and economic growth through job creation on the one hand, but also cater to the competitive edge of local investors.

The Tonse Government must increase the tax base of Malawi, where everyone operating a business in Malawi is expected and pay his or her taxes. This will mean removing the popular tax holiday, which is meant to attract investors that will create jobs.

Attracting foreign investors reminds me, and I am pained, of three companies that set up their businesses in Malawi at the dawn of the second republic. The first one was of a craftily businessman who imported into Malawi boxes of ‘already assembled television sets,’  from the far east; he reloaded tv sets into boxes that were labeled “Made in Malawi” and sold them to South Africa, thereby enjoying Malawi’s pre-1990 duty-free status for the goods.

His simple, open, deceptive, and fraudulent enterprise cost the Malawi people its friendship with the then Apartheid government, which was compelled to remove the duty/tax-free status for Malawi goods. The South African government began to levy all goods coming from Malawi.

The second was a flashy Blantyre-based supermarket that imported chickens from eastern Europe, tomatoes from South Africa, and chocolates from Russia. While the Malawi Development Corporation (MDC) was busy turning away Malawi investors, it freely loaned this investor millions of kwacha, to open a shop that does not buy any locally manufactured products.

The gentleman declared himself bankrupted. The shop close; sadly, the buildings caught fire and poof! Even part of our history is gone: the premises was formerly the center of Halls Garage.

The third was a company that manufactured intravenous fluids. Similar to the east European “foreign investor,” this foreign investor (of Asian origin) also borrowed money from the MDC. The company was officially opened by then-President Dr. Bakili Muluzi.

This company faced another similarity with the European: its directors declared bankruptcy.

The losers here were the Malawi people, denied loans from their own development agency, but loans were given to foreigners. MDC closed soon after these bankruptcies.

The two lessons from these examples are that the government must seriously scrutinize all foreign investors; they should not have to come here empty-handed, borrow money from our struggling banking sector (thereby depriving Malawians of seed capital). The second is that of scrapping the tax holiday. Unless an investor (with his/her) own money will establish a company that will employ 1000+ Malawians, there should be no tax holiday. To the Minister of Finance, please find incentive ways to ensure that all people living and earning a living (making money), should pay their fair share of the country’s tax burden.

The willy-nilly method of overloading the VAT system must stop, Malawians cannot afford the VAT: it is bad for business, it is bad for ordinary Malawians’ livelihoods. the sustainable development of our future depends on the economic, political, and social policies we craft today.

Janet Karim
Janet Karim
Author, high school Learning Disabilities Teacher, candidate Master of Education Special Education, Mason University; highly organized, charismatic and persuasive Communications Specialist and accomplished Journalist, Editor with 41 years in the communications field, offering expertise in all phases of print, broadcast, telecast, and social media productions. Enthusiastic story teller. Highly-motivated and trained media professional possessing exceptional writing and editing skills with ability to draft engaging and effective content; Opinion column contributor for leading national dailies (Maravi Post - 2015-PRESENT; Nation Malawi - 2015-PRESENT; Times Malawi (2004-2007). Other areas of expertise include grant writing and NGO project management. Highly trained in international, regional and local lobbying and election skills. Collaborates with international companies to initiate development policy change and foster public awareness, with deep commitment to social justice and health care equity; especially in work towards women's political, economic, and social empowerment; ending child, early and forced marriage; and promoting the human rights of the elderly. Advocate for highlighting climate change its effects on the planet. International development work experience with the United Nations headquarters (10 years, and two years UNDP field work); field experience (Malawi) - Oxfam, UNDP, UNICEF and UNESCO. Superb public speaker who communicates effectively with target audiences through strategic one-to-one or large audiences, expert in event planning and PR campaigns. Conscientious, diplomatic, and tactful in all communicationsg.
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