When Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha took to the floor in Parliament last Friday to present the 2025/26 Mid-Year Budget Review Statement, expectations were high that he would deliver a revised fiscal plan that would give Malawians some breathing space. To many Malawians enduring a harsh economic environment characterised by ever rising high cost of living, scarcity of commodities and dwindling purchasing power in an economy reeling under the pressure of a public debt stock of K28 trillion against dwindling domestic revenues, the minister was seen as someone holding the key to unlock a better world. But cometh the hour, cometh the man and on the appointed day Mwanamvekha unveiled a mixed bag of a budget that outlined some bold reforms, including revised tax measures that have drawn trepidation from the masses.
While it is understandable that in an environment where domestic revenues are not enough to finance public expenditure and grants from development partners are not guaranteed, maximising on taxes could not be avoided. However, it is the manner in which the measures are being implemented that is a cause for worry. It is like the State is hell bent at milking the very skinny cow in the name of the compliant taxpayers without feeding it.
To those in formal employment, the zero-rated tax bracket has been pushed from the first K150 000 to K170 000, but then the minister instantly took away the “gains” with his left hand by removing the first 25 percent bracket for Pay As You Earn (Paye) and making 30 percent the starting point. This means that the next income above K170 000 that was hitherto taxed at 25 percent now falls in the 30 percent bracket. Further, value-added tax (VAT) levied on consumption is up from 16.5 to 17.5 percent, implying that all VAT-applicable goods and services will go up, further weakening the buying power.
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High income earners, those in the range of K10 million and above now face a whopping 40 percent Paye obligation in their earnings, up from 35 percent. From the budget, what is clear is that the government is out to maximise the tax earnings to boost domestic revenue amid budget deficits that have led to excessive borrowing. In that drive, there is a two percent motor vehicle insurance levy purportedly to cover costs of treating road accident victims.
With regard to the levy on motor vehicle insurance, I still see the tendency to milk the skinny cow. Not to be judgemental, but it is a fact that the proliferation of unregulated motorcycle taxis (kabaza) has worsened road traffic accidents. Yes, they have eased mobility, but they need to be tamed and ensure that they comply with the traffic regulations through strict enforcement.
No kabaza should be allowed to take to the streets without registration, rider’s licence, crash helmets, certificate of fitness and insurance. I believe this would go a long way in bringing sanity as well as boosting public revenues while enhancing safety on our roads instead of massaging or tolerating the chaos by forcing motorists to pay for unruly kabazas. The Mid-Year Budget Review Statement has proposed a K512.6 billion increase in the 2025/26 National Budget from K8.077 trillion to K8.589 trillion.
This is against the widening budget deficits and shrinking domestic revenues. Mwanamvekha has spared no one among the compliant taxpayers, from individuals in formal employment to the corporates slapped with high taxes that could scare away potential investors. What I have noted over the years is that there is hesitation to tax the informal sector which has often resisted any attempt.
Here, the taxes on second-hand clothing and imported used motor vehicles come to mind as they were reversed following protests. This is one weakness that has left the economy banking on the few compliant ones in the formal sector. The minister mentioned the taxation of rental income, but again this is not new.
It has been stated before, but with negligible compliance and I doubt that this time around this will work out. The consumption taxes and levies on transactions will definitely hit the poorest the hardest. When making attempts to widen the tax base, it is important to strive to strike a healthy balance with policy.
What I note is that Mwanamvekha’s Mid-Year Budget Review Statement is an attempt to seek resources to finance the campaign promises, including the scrapping of examination fees in national examinations, free secondary education and reduced redeem price for input subsidies. It is on record that at least 30 percent or close to one third of the resources Parliament approves in the national budget go down the drain through fraud, corruption and other vices. Given this situation, in times like these, it would also be prudent for the government to strive to seal the leakages and put to productive use the resources currently being plundered willy-nilly, that way the tax burden would be reduced.
My parting shot is that politicians should get more creative on how campaign promises can be actualized and, at all cost avoid using the masses as sacrificial lambs. If it is about belt-tightening, it should be seen to be done from the top, not what has now become a trend where austerity measures are announced with fanfare only to be discarded and left to gather dust on book shelves faster than they were launched.
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