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New tax measures; hit or miss for manufacturing sector?

On February 23, 2024, Minister of Finance and Economic Affairs Simplex Chithyola Banda presented his K5.9 trillion maiden budget which carried a number of new tax policy measures. But are the measures a hit or miss for the manufacturing sector? Our business editor Justin Mkweu analyses the subject.

As of December 2023, Malawi’s trade deficit (the negative difference between money realized from exports and money used for imports) was recorded at $495.8 million (K754.1 billion). This glaring gap is due to the unquenchable import thirst against an ailing production base, which then leads to dwindled exports.

No doubt the private sector has a role to play in improving the country’s production, which could in turn boost exports. A big chunk, however, rests with the government as it has to ensure that there is an enabling environment for businesses to thrive.

In his attempt to mend the trade deficit, the Minister of Finance and Economic Affairs took a bold step by announcing a number of tax measures, hoping that this would help fast-track the country towards the production route.

Most of the measures are aimed at punishing traders who are happy with Malawi being a net importing and consuming nation.

Banda said the ministry, through the Malawi Revenue Authority, will allow the Malawi Army, the Malawi Police Service, and the Malawi Prisons to import duty-free fabrics and accessories for making uniforms. This means that Malawi will save foreign exchange used to import finished regalia for the men in uniform.

The other tax measures include an increase in import duty on finished iron sheets from 15 percent to 25 percent, an increase in import duty for sacks from 20 percent to 25 percent, an introduction of a surcharge of 10 percent on sacks for cement packaging and a reduction in excise tax on clear beer made from sorghum and maize from 40 percent to 20 percent.

All four tax policy measures are meant to ensure that importing finished goods becomes more expensive than importing raw materials so that industries concentrate on production rather than imports.

This is just a fraction of the tax measures that the ministry announced in the proposed budget, with a view of encouraging production in the country while dissuading those who want the country to continue being a net importer.

Institute of Chartered Accountants in Malawi Director of Technical and Membership Services, Charles Chimpeni, described the taxes as positive to the manufacturing sector.

“Malawians will notice that most taxes want to encourage the production of goods in the country which should be exported as finished goods and that is a positive development,” Chimpeni said.

Taxes will instill hope as far as the growth of the manufacturing sector is concerned – Lekani Katandula

On the other hand, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) President Lekani Katandula said the taxes will instill hope as far as the growth of the manufacturing sector is concerned.

“There are pieces that cover the manufacturing sector such as reduction of excise tax on some clear beer therefore some quarters of the sector will benefit from these interventions,” Katandula said.

Economics Association of Malawi (Ecam) acting President Bertha Chikadza said economists are happy that the budget is taxing the importation of finished products such as food.

“What they are trying to achieve with this is that people should be importing raw materials which is one way of making sure that industries are growing through production which will eventually increase the economic recovery pace,” she said.

In the budget, the Minister of Finance and Economic Affairs said all the policies seek to recover, develop, and protect the economy.

Therefore, in the end, if you are a fan of importing finished goods and services, then you better think again because the tax provisions, as spelled out in the 2024-25 national budget, are meant to bring about the much-needed change for the fortunes of the local economy.

But if you like importing raw materials to be used in the production of goods, then you have all the reasons to smile as the proposed national budget has just tilted things in your favour.

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