Tuesday, 28 June 2011

Malawi backtracks on taxing the poor

Malawi's zero-deficit budget proposals raised eyebrows in many quarters but within the country one of the most controversial proposals was a fixed VAT rate of 16.5% across a wide range of products including many basic essentials. Poverty rates are significant and tax on essentials would push people already struggling with high food prices further into poverty and desperation.

The government has now backtracked on the original proposals, announcing that products such as salt, water, meat and offal will be exempt from the taxes.

The new tax regime is still likely to strain the resources of the population - as the government attempts to make up the gap left by recently withdrawn aid - but this move should cushion the blow slightly, at least for the poorest of the poor. Newspapers remain on the list of items that will attract the heavier (16.5%) VAT.

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